The Government has bailed out the banks, but the insurance and mutual fund industries problems will have to be dealt with next. Will they be bailed out? No.
First, those in the know have already fled from these two industries leaving only the unsuspecting public invested. The wealthy already know that the feds don't have the ability to bail out these two industries also, leaving 401(k) plans of the average employee exposed to the risk of default.
In light of the above, if you have the ability to withdraw from your plan, DO IT!
You can't invest in gold in your 401(k), nor cash, nor offshore accounts, or anything else you feel would insure your wealth from disaster. But if you can withdraw or rollover your plan assets, then you have options other than these two "walking dead" industries.
But most likely, you can't take a withdrawal now while you are still working because your plan rules won't allow it. This is common in 401(k) plans.
The IRS rules do permit 401(K) plans to allow participants to take in-service withdrawals (meaning withdrawals while you're still working with the company) after two years of service. So you can write a letter to the Plan Sponsor (get this address from your HR department) and ask them to change their rule. In all likelihood, you'll get a big fat "no" in response, but you never know.
Otherwise, all those hard-earned dollars that you have set aside for retirment remain subject to the risk of being the next casualty of this collapsing financial house of cards.
The following article gives more information (some conflicting) on how to make in-service withdrawals.
Can I rollover my 401k while still employed?
In recent conversations, the question has come up as to whether you call rollover your 401k to a traditional IRA while still employed at the sponsoring employer. There seems to be some confusion about this and rumors of new laws that allow it.
The short answer to the question is, no. By law, you can not withdraw 401k contributions, that is, pre-tax salary deferrals, before severance, plan termination, turning 59 1/2, death, disability or hardship (and you can’t roll over hardship withdrawals).
The long answer is, yes, under certain circumstances, you can.
The standard exceptions do apply, for example, if you are 60 years of age or older, and still working, most qualified plans allow “age 59 1/2 rollovers”. If a particular plan does not, they most likely allow rollovers at age 65. The exceptions can add to the confusion and there is such a thing as the “in-service withdrawal”.
To me, the most interesting exception being the fact that the law only applies to your pre-tax salary deferrals. You CAN rollover (or otherwise withdraw) employer contributions, or employee (after-tax or rollover) contributions. And you can do so without any required taxes or penalties.
This can be a big deal. I know someone who’s matching contributions from his company were paid in company preferred stock and it ended up comprising a whopping 75% of his total plan holdings. He was not allowed, then, to diversify any matching funds elsewhere within the plan.
Being able to rollover the employer contributions was a great opportunity for him diversify his porfolio, get back to a better asset allocation, and contribute to more cost effective funds. But, it was not without penalty. The penalty (defined specifically by his company’s plan) was that he could not contribute to his plan for 12 months beginning from the day the withdrawal took place.
Some employer retirement plans have provisions for you to do a 401k rollover on some of the assets while you are still employed by the employer, but you’ll need to check with your employer to see if they allow it, and what penalties may be associated with it. Most 401k prospectuses and companies in general don’t make this common knowledge to employees.
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Close Call For US Banks
We Haven’t Seen the Mania in Gold - Yet
We Haven’t Seen the Mania in Gold … Yet
by Sean Broderick
Even though gold has rallied for more than seven years, I don’t think we’re near the top. Sure, investors are scared. But I expect to see at least three other developments before we get to the mania phase.
The first development — Hoarding
The Central Banks will start hoarding their gold as fears of sovereign bankruptcy rise. Collapse of credit bubbles in Ireland, Spain, Greece and Portugal could lead to those countries defaulting. And Eastern Europe looks even worse.
Eastern Europe has borrowed $1.7 trillion from abroad, much of it on short-term maturities. It MUST repay — or roll over — $400 billion this year, equal to a third of the region’s GDP. Good luck!
So I expect at least one European or Eastern European country to go bankrupt in the next 12 months, and that will strike fear into the hearts of the Central Banks. Suddenly, they’ll want to prove that they have more gold than anybody. And they won’t sell.
If Central Banks stop selling, a significant source of supply would be taken off the market. In fact, sales are already declining: Central Banks sold 260 tonnes last year — down 113 tonnes from 2007.
The second development — Russia goes on a buying binge
Russia, which is battling to keep its currency from tumbling, is noisily adding to its gold reserves. First deputy chairman Alexei Ulyukayev recently told Reuters that his country bought $1.5 billion worth of gold in a week. The Russian added, “We are aiming to continue this tendency this year; we are buying gold.”
Russia’s central bank says it would like to hold 10% of its reserves in gold, which could take its inventory up to around 1,200 tonnes from 495.9 tonnes at the end of last year.
The third development — China jumps in with both feet
Finally, one other development I expect on the road to mania is that China, like Russia, will start buying gold on the open market for its own reserves. China’s foreign currency reserves increased 27% in the past year to $1.95 trillion, about 29% of the world’s total. The country already owns $696.2 billion in Treasuries, about 12% of the U.S.’s outstanding marketable debt.
China holds gold reserves of just 600 tonnes, worth only $18.62 billion. Experts say that Beijing’s reserves could easily go up to 3,000 or 4,000 tonnes.
Would that have a huge impact on the market? Bet on it!
Send Some To Canada
It has been my contention since the beginning of this crisis that the individual investor's best protection from financial ruin is diversification. As the wisest man who ever lived said, "divide your investments among many places, for you do not know what risks might lie ahead." (Holy Bible, Ecclesiastes 11:2, New Living Translation)
In light of the above advice, I have been advocating that my clients move a portion of their investments to Canada, to diversify away from the risk of a US dollar/banking system default.
"But isn't there a risk that I could send my money to Canada and not be able to get it back," I am always asked.
Of course the answer to that questions is "yes," but the answer to that question about ANY investment (except for gold or silver) is "yes."
Is there risk of loss in an FDIC Insured bank account here in the US? ABSOLUTELY!
So the question to ask is not "is this risky?" The question to ask is "what has the least risk?" Because right now..... EVERYTHING is risky.
Back to Canada
Newsweek recently ran an article entitled Worthwhile Canadian Initiative, in which they stated that "Canadian banks are typically leveraged at 18 to 1, compared with U.S. banks at 26 to 1."
Bottom line? More leverage equals more risk. End of story.
The article continues "Guess which country,alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it's Canada. In 2008, the World Economic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th."
Chris Laird, editor of the Prudent Squirrel Newsletter was recently asked what currencies he feels are the safest to move into. He only mentioned one.... the Canadian dollar.
Conclusion
Can the Canadia dollar fail? Yes. Can Canadian banks fail? Yes.
But those are not the questions to be asking. The question to be asking is "where is the LEAST risky place to store some of my wealth?" For my money, it's Canada.
In light of the above advice, I have been advocating that my clients move a portion of their investments to Canada, to diversify away from the risk of a US dollar/banking system default.
"But isn't there a risk that I could send my money to Canada and not be able to get it back," I am always asked.
Of course the answer to that questions is "yes," but the answer to that question about ANY investment (except for gold or silver) is "yes."
Is there risk of loss in an FDIC Insured bank account here in the US? ABSOLUTELY!
So the question to ask is not "is this risky?" The question to ask is "what has the least risk?" Because right now..... EVERYTHING is risky.
Back to Canada
Newsweek recently ran an article entitled Worthwhile Canadian Initiative, in which they stated that "Canadian banks are typically leveraged at 18 to 1, compared with U.S. banks at 26 to 1."
Bottom line? More leverage equals more risk. End of story.
The article continues "Guess which country,alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it's Canada. In 2008, the World Economic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th."
Chris Laird, editor of the Prudent Squirrel Newsletter was recently asked what currencies he feels are the safest to move into. He only mentioned one.... the Canadian dollar.
Conclusion
Can the Canadia dollar fail? Yes. Can Canadian banks fail? Yes.
But those are not the questions to be asking. The question to be asking is "where is the LEAST risky place to store some of my wealth?" For my money, it's Canada.
How Currency Runs Happen
by Chris Laird
Prudent Squirrel Newsletter
February 22, 2009
Unless the US had sent out $trillions of stabilization over the last year, our banks would have closed twice. Our financial markets would be at ten percent of their present value, and our bond markets might have collapsed, and everyone else’s. Effectively everyone, institutions, individuals, businesses and funds would have tried to pull money out of every possible account. Needless to say, that is what forces bank closures – to stem it. In fact, that UK minister stated that they temporarily froze electronic transfers that fatal day in the Fall of 08.
Then, when bank closures happen, a general financial emergency is declared, and governments freeze international money transfers to prevent a run on the currency.
I think you get the idea. The entire world economy would stop, businesses could not ship, food would shortly be unable to ship, as no one can transact. Everything stops, probably even the gas pumps. And gas stops being shipped etc. The world supply chain is roughly 3 days supply of everything.
I am not exaggerating.
This is what has so far been narrowly averted, two times in the last year and a half.
So, even though many of us can still buy things at the stores, and still get our money, and invest, things are a bit dicey, to say the least.
How do we protect ourselves?
One possible strategy would be to pick several currencies, have insured accounts in a mix of them, and some insured CDs. Also having actual cash in several currencies is not a bad idea too. Basically, the idea is to spread the risk and by having some cash you are not dependent on electronic accounts, which I expect to be locked if there is a currency/bank run and resulting foreign exchange restrictions that may last who knows how long.
And of course, gold and silver coins, including platinum, but I prefer gold mostly. Also essential is having food and necessities, to include your meds for several months, the longer the better without going crazy (a Year?).
But, this edition was to emphasize just how close we came on two occasions to an actual world banking run and closure, with foreign exchange controls and likely shortages of many things due to a stalled supply chain as no one could transact or buy/ship/finance inventory.
Prudent Squirrel Newsletter
February 22, 2009
Unless the US had sent out $trillions of stabilization over the last year, our banks would have closed twice. Our financial markets would be at ten percent of their present value, and our bond markets might have collapsed, and everyone else’s. Effectively everyone, institutions, individuals, businesses and funds would have tried to pull money out of every possible account. Needless to say, that is what forces bank closures – to stem it. In fact, that UK minister stated that they temporarily froze electronic transfers that fatal day in the Fall of 08.
Then, when bank closures happen, a general financial emergency is declared, and governments freeze international money transfers to prevent a run on the currency.
I think you get the idea. The entire world economy would stop, businesses could not ship, food would shortly be unable to ship, as no one can transact. Everything stops, probably even the gas pumps. And gas stops being shipped etc. The world supply chain is roughly 3 days supply of everything.
I am not exaggerating.
This is what has so far been narrowly averted, two times in the last year and a half.
So, even though many of us can still buy things at the stores, and still get our money, and invest, things are a bit dicey, to say the least.
How do we protect ourselves?
One possible strategy would be to pick several currencies, have insured accounts in a mix of them, and some insured CDs. Also having actual cash in several currencies is not a bad idea too. Basically, the idea is to spread the risk and by having some cash you are not dependent on electronic accounts, which I expect to be locked if there is a currency/bank run and resulting foreign exchange restrictions that may last who knows how long.
And of course, gold and silver coins, including platinum, but I prefer gold mostly. Also essential is having food and necessities, to include your meds for several months, the longer the better without going crazy (a Year?).
But, this edition was to emphasize just how close we came on two occasions to an actual world banking run and closure, with foreign exchange controls and likely shortages of many things due to a stalled supply chain as no one could transact or buy/ship/finance inventory.
Currencies As Money?
Excerpts from TraderView.com's Economic Commentary
"When looking at currencies, it is important to note that most masquerade as MONEY but are actually IOU’s from morally and fiscally bankrupt public servants and their monopolist companions in the central banks and banking systems. In order to differentiate currency from MONEY, we must first define which is which. So first, let’s look at the functions of money:
>Medium of Exchange
>Store of Value
>Standard of Value
>Measure of Value
>No one else’s liability
There are only two currencies which meet this definition and functions as such, and they are the longest running currencies in history: they are Gold and Silver. There are also techniques you can use to restore this definition to G7 currencies, but I won’t go into them here. In today’s world, currencies only live up to one of the definitions above and one other:
>Medium of Exchange
>Someone else’s liability: in effect, that of the government that issues them, such as the US Dollar, UK Pound, Swiss Franc, Euro, etc.; these are actually IOU’s."
************************************
"Now we must introduce the MODERN day currency concept (from my good friend Clyde Harrison) of “CURRENCIES DON’T FLOAT, THEY JUST SINK AT DIFFERENT RATES”! To illustrate this, we will use a recent chart by James Turk (at http://www.fgmr.com , Freemarket Gold & Money Report; I subscribe and recommend you do too):
This is the picture of FIAT currency and credit creation and the theft of the purchasing power of the MONEY YOU HOLD WHILE IT SITS IN YOUR BANK. Gold and silver ARE NOT rising in value (they are holding their value steady); it is the purchasing power of your money SHRINKING through DEBASEMENT. It is gold REPRICING higher to reflect the lost purchasing power of the currency in which it is DENOMINATED. It is a stealth tax courtesy of YOU KNOW WHO! And the mainstream media says there is NO INFLATION. Wanna bet? THIS IS SET TO ACCELERATE WITH THE INEVITABLE PRINTING PRESS SOLUTIONS of the G7."
"When looking at currencies, it is important to note that most masquerade as MONEY but are actually IOU’s from morally and fiscally bankrupt public servants and their monopolist companions in the central banks and banking systems. In order to differentiate currency from MONEY, we must first define which is which. So first, let’s look at the functions of money:
>Medium of Exchange
>Store of Value
>Standard of Value
>Measure of Value
>No one else’s liability
There are only two currencies which meet this definition and functions as such, and they are the longest running currencies in history: they are Gold and Silver. There are also techniques you can use to restore this definition to G7 currencies, but I won’t go into them here. In today’s world, currencies only live up to one of the definitions above and one other:
>Medium of Exchange
>Someone else’s liability: in effect, that of the government that issues them, such as the US Dollar, UK Pound, Swiss Franc, Euro, etc.; these are actually IOU’s."
************************************
"Now we must introduce the MODERN day currency concept (from my good friend Clyde Harrison) of “CURRENCIES DON’T FLOAT, THEY JUST SINK AT DIFFERENT RATES”! To illustrate this, we will use a recent chart by James Turk (at http://www.fgmr.com , Freemarket Gold & Money Report; I subscribe and recommend you do too):
This is the picture of FIAT currency and credit creation and the theft of the purchasing power of the MONEY YOU HOLD WHILE IT SITS IN YOUR BANK. Gold and silver ARE NOT rising in value (they are holding their value steady); it is the purchasing power of your money SHRINKING through DEBASEMENT. It is gold REPRICING higher to reflect the lost purchasing power of the currency in which it is DENOMINATED. It is a stealth tax courtesy of YOU KNOW WHO! And the mainstream media says there is NO INFLATION. Wanna bet? THIS IS SET TO ACCELERATE WITH THE INEVITABLE PRINTING PRESS SOLUTIONS of the G7."
A Look At How Gold Is Traded and Priced
Often I am asked "What determines the price of gold." What makes it go up and down?"
The simple answer is supply and demand. When more people want to buy it than sell it, then the price is bid up by the buyers until the sellers are willing to part with their gold. So the bottom line is this: In times of crisis or turmoil, gold is always the money of ultimate safety, and the price is bid up accordingly as the masses get rid of their paper investments, preferring to conserve their wealth in an asset that cannot be maniputlated, defaulted on or counterfeited.
If/when our current monetary system collapses from the weight of its own debts, the rush to the gold lifeboat will be fast and furious. Of course there is not enough for everyone to have some (more buyers than sellers), so the price will be bid up in a frenzied manner. We could see $10,000 an ounce gold within a matter of hours, and I am deliberately being conservative here in my conjecture!
To get an idea of how this situation might look, take a peek at the video clip below from the 1983 classic Trading Places with Eddie Murphy and Dan Ackroyd. They are trading OJ not gold, but the principles are the same.
Enjoy.
Scene Summary
The Duke brothers (Commodities Brokers) tried to steal the Orange Juice Crop Crop Report. But Billy-Ray and Lewis (Eddie Murphy and Dan Ackroyd), after having been poorly treated by the Dukes, get the real report and give the Dukes a fake.
The Dukes send their trader to the commodities floor with instructions to buy like crazy. Their fake report shows a tough winter, and so they're betting the price will go way up after the "official" release of the report. The trader starts buying and others see the Dukes trying to corner the market, so they start buying. This drives the price up.
At just the right time, Billy-Ray and Lewis "sell" futures contracts for orange juice. They sell like crazy. They're selling contracts for orange juice they don't even own and can't deliver. This is called "short-selling.* Their selling drives the price down a bit. It also pads their trading account with a ton of cash.
The secretary of agriculture announces that the winter did not affect the crop, so the pit full of traders freaks out! There's not going to be price pressure, so they're all holding OJ contracts that are seriously overpriced. A mad selling frenzy ensues, driving the price way down.
Again at a point timed for maximum effect, Lewis and Billy-Ray Valentine announce that they'll "buy em" -- they buy back the OJ contracts at a much lower price than they sold them for earlier, netting them a huge profit. They also refuse to sell to the Duke's trader, freezing him out.
The Duke's get a margin call and go bust and our heroes make a lot of scratch. Of course, in real life, trading curbs and circuit breakers would prevent either side of this play, but it is educational and funny to watch.
*Short-selling is a financial transaction in which traders who think the price of a commodity is going to drop, will enter into a contract to sell the commodity at the currently higher prices. To short-sell commodities all you have to do is be able to deliver at the date in the contract. The idea is to buy the contracts back at a later date and a lower price, and then be able to deliver the commodity as promised. It is basic buy low/sell high, with the selling done before the buying.
The simple answer is supply and demand. When more people want to buy it than sell it, then the price is bid up by the buyers until the sellers are willing to part with their gold. So the bottom line is this: In times of crisis or turmoil, gold is always the money of ultimate safety, and the price is bid up accordingly as the masses get rid of their paper investments, preferring to conserve their wealth in an asset that cannot be maniputlated, defaulted on or counterfeited.
If/when our current monetary system collapses from the weight of its own debts, the rush to the gold lifeboat will be fast and furious. Of course there is not enough for everyone to have some (more buyers than sellers), so the price will be bid up in a frenzied manner. We could see $10,000 an ounce gold within a matter of hours, and I am deliberately being conservative here in my conjecture!
To get an idea of how this situation might look, take a peek at the video clip below from the 1983 classic Trading Places with Eddie Murphy and Dan Ackroyd. They are trading OJ not gold, but the principles are the same.
Enjoy.
Scene Summary
The Duke brothers (Commodities Brokers) tried to steal the Orange Juice Crop Crop Report. But Billy-Ray and Lewis (Eddie Murphy and Dan Ackroyd), after having been poorly treated by the Dukes, get the real report and give the Dukes a fake.
The Dukes send their trader to the commodities floor with instructions to buy like crazy. Their fake report shows a tough winter, and so they're betting the price will go way up after the "official" release of the report. The trader starts buying and others see the Dukes trying to corner the market, so they start buying. This drives the price up.
At just the right time, Billy-Ray and Lewis "sell" futures contracts for orange juice. They sell like crazy. They're selling contracts for orange juice they don't even own and can't deliver. This is called "short-selling.* Their selling drives the price down a bit. It also pads their trading account with a ton of cash.
The secretary of agriculture announces that the winter did not affect the crop, so the pit full of traders freaks out! There's not going to be price pressure, so they're all holding OJ contracts that are seriously overpriced. A mad selling frenzy ensues, driving the price way down.
Again at a point timed for maximum effect, Lewis and Billy-Ray Valentine announce that they'll "buy em" -- they buy back the OJ contracts at a much lower price than they sold them for earlier, netting them a huge profit. They also refuse to sell to the Duke's trader, freezing him out.
The Duke's get a margin call and go bust and our heroes make a lot of scratch. Of course, in real life, trading curbs and circuit breakers would prevent either side of this play, but it is educational and funny to watch.
*Short-selling is a financial transaction in which traders who think the price of a commodity is going to drop, will enter into a contract to sell the commodity at the currently higher prices. To short-sell commodities all you have to do is be able to deliver at the date in the contract. The idea is to buy the contracts back at a later date and a lower price, and then be able to deliver the commodity as promised. It is basic buy low/sell high, with the selling done before the buying.
Word on the street today from the traders is "it appears that the large investors are moving to hard assets like gold and not to fiat currencies," says Chuck Butler of Kitco Casey Research.
The Financial Times reports "Investors in Europe and North America went on an extraordinary shopping spree for gold coins and bars in the final quarter of last year, snapping up 148.5 tonnes, a jump of 811 per cent compared with the same period in 2007, as the collapse of Lehman Brothers led a massive increase in safe haven buying.
The World Gold Council's data confirmed earlier reports from traders about widespread shortages of coins and exceptional buying interest. Retail investors in France, for example, become net buyers of gold for the first time in a quarter of a century at the end of last year.
The strength of investor interest has analysts wondering just how far the gold price could rise.
'There is a very strong case to be made that the current rally in gold is potential pre-positioning ahead of a much larger move at some point in the future,' said Michael Jansen, analyst at JPMorgan."
In another Financial Times article they report "Gold is a prime candidate to become a "mania asset" once its demand becomes chiefly financially driven as opposed to jewellery and/or industrial demand driven where its upside could be capped by "sticker shock".
In fact, gold is currently one of the few remaining major asset classes where a case could be made for it to rise in a parabolic fashion. Once the psychologically significant $1,000 an ounce is breached convincingly, the speed of the move beyond that level could accelerate sharply."
Chris Laird of the Prudent Squirrel Newsletter stated that the world economy is not in a recession but in a "crash." "In case you doubt the ‘crash’ characterization for the world economy, consider that Japanese exports fell an astounding 35% in 2008, a figure I keep having to remind myself is not a typo, since a 3.5% fall in any GDP statistic used to be considered a catastrophe in recent decades."
Laird continues "And of course, this US/Western consumer collapse is hammering Asia generally. I had a subscriber send me some amazing photos he took of empty idled ships in a huge harbor in Singapore:"
And finally, the Mogambo Guru gives us his sarcastic slant on all that is going on in the world...
"Now you know part of the reason that Congress has officially gone into Panic Mode, which was unofficially announced by Bloomberg.com reporting that “The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion.”
Now, I think you will agree that that is a lot of money, and Bloomberg notes that “the $9.7 trillion in pledges would be enough to send a $1,430 check to every man, woman and child alive in the world,” and is “enough to pay off more than 90 percent of the nation’s home mortgages.”
The reality is that only about $200 billion is actually slated to be spent before September, and the other $9.5 trillion of future “stimulus spending” is in the form of commitments that are “lending programs and guarantees, almost all under the authority of the Fed and the FDIC”, which I take to mean, “When our scumbag friends need to be saved from taking a loss on their stupid bets, we will print up the money they need, up to an estimated $9.5 trillion”! Hahahaha!
Bloomberg.com adds, as if we had to be reminded what a bunch of lying, thieving scumbags these people are, “The recipients’ names have not been disclosed.”
And speaking of lying, thieving scumbags… For some reason, the NYSE Member’s Report – showing what the stock market insiders and specialists are selling and buying and shorting – is no longer available in Barron’s because, as online.barrons.com phrases it, “The NYSE is no longer compiling this data for us on a weekly basis.”
It’s all too, too weird, leading me to summarize, with trembling voice, that if this is not the perfect time to be buying gold, silver and oil to protect yourself, then when is? Hahaha! Whee! This investing stuff is easy!"
The Financial Times reports "Investors in Europe and North America went on an extraordinary shopping spree for gold coins and bars in the final quarter of last year, snapping up 148.5 tonnes, a jump of 811 per cent compared with the same period in 2007, as the collapse of Lehman Brothers led a massive increase in safe haven buying.
The World Gold Council's data confirmed earlier reports from traders about widespread shortages of coins and exceptional buying interest. Retail investors in France, for example, become net buyers of gold for the first time in a quarter of a century at the end of last year.
The strength of investor interest has analysts wondering just how far the gold price could rise.
'There is a very strong case to be made that the current rally in gold is potential pre-positioning ahead of a much larger move at some point in the future,' said Michael Jansen, analyst at JPMorgan."
In another Financial Times article they report "Gold is a prime candidate to become a "mania asset" once its demand becomes chiefly financially driven as opposed to jewellery and/or industrial demand driven where its upside could be capped by "sticker shock".
In fact, gold is currently one of the few remaining major asset classes where a case could be made for it to rise in a parabolic fashion. Once the psychologically significant $1,000 an ounce is breached convincingly, the speed of the move beyond that level could accelerate sharply."
Chris Laird of the Prudent Squirrel Newsletter stated that the world economy is not in a recession but in a "crash." "In case you doubt the ‘crash’ characterization for the world economy, consider that Japanese exports fell an astounding 35% in 2008, a figure I keep having to remind myself is not a typo, since a 3.5% fall in any GDP statistic used to be considered a catastrophe in recent decades."
Laird continues "And of course, this US/Western consumer collapse is hammering Asia generally. I had a subscriber send me some amazing photos he took of empty idled ships in a huge harbor in Singapore:"And finally, the Mogambo Guru gives us his sarcastic slant on all that is going on in the world...
"Now you know part of the reason that Congress has officially gone into Panic Mode, which was unofficially announced by Bloomberg.com reporting that “The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion.”
Now, I think you will agree that that is a lot of money, and Bloomberg notes that “the $9.7 trillion in pledges would be enough to send a $1,430 check to every man, woman and child alive in the world,” and is “enough to pay off more than 90 percent of the nation’s home mortgages.”
The reality is that only about $200 billion is actually slated to be spent before September, and the other $9.5 trillion of future “stimulus spending” is in the form of commitments that are “lending programs and guarantees, almost all under the authority of the Fed and the FDIC”, which I take to mean, “When our scumbag friends need to be saved from taking a loss on their stupid bets, we will print up the money they need, up to an estimated $9.5 trillion”! Hahahaha!
Bloomberg.com adds, as if we had to be reminded what a bunch of lying, thieving scumbags these people are, “The recipients’ names have not been disclosed.”
And speaking of lying, thieving scumbags… For some reason, the NYSE Member’s Report – showing what the stock market insiders and specialists are selling and buying and shorting – is no longer available in Barron’s because, as online.barrons.com phrases it, “The NYSE is no longer compiling this data for us on a weekly basis.”
It’s all too, too weird, leading me to summarize, with trembling voice, that if this is not the perfect time to be buying gold, silver and oil to protect yourself, then when is? Hahaha! Whee! This investing stuff is easy!"
Capitalism Needs a Sound-Money Foundation
Let's give the Fed some competition. Abolish legal tender laws and see whose money people trust.
By JUDY SHELTON
The Wall Street Journal full article
Let's go back to the gold standard.
If the very idea seems at odds with what is currently happening in our country -- with Congress preparing to pass a massive economic stimulus bill that will push the fiscal deficit to triple the size of last year's record budget gap -- it's because a gold standard stands in the way of runaway government spending.
Under a gold standard, if people think the paper money printed by government is losing value, they have the right to switch to gold. Fiat money -- i.e., currency with no intrinsic worth that government has decreed legal tender -- loses its value when government creates more than can be absorbed by the productive real economy. Too much fiat money results in inflation -- which pools in certain sectors at first, such as housing or financial assets, but ultimately raises prices in general.
Inflation is the enemy of capitalism, chiseling away at the foundation of free markets and the laws of supply and demand. It distorts price signals, making retailers look like profiteers and deceiving workers into thinking their wages have gone up. It pushes families into higher income tax brackets without increasing their real consumption opportunities.
In short, inflation undermines capitalism by destroying the rationale for dedicating a portion of today's earnings to savings. Accumulated savings provide the capital that finances projects that generate higher future returns; it's how an economy grows, how a society reaches higher levels of prosperity. But inflation makes suckers out of savers.
If capitalism is to be preserved, it can't be through the con game of diluting the value of money. People see through such tactics; they recognize the signs of impending inflation. When we see Congress getting ready to pay for 40% of 2009 federal budget expenditures with money created from thin air, there's no getting around it. Our money will lose its capacity to serve as an honest measure, a meaningful unit of account. Our paper currency cannot provide a reliable store of value.
So we must first establish a sound foundation for capitalism by permitting people to use a form of money they trust. Gold and silver have traditionally served as currencies -- and for good reason. A study by two economists at the Federal Reserve Bank of Minneapolis, Arthur Rolnick and Warren Weber, concluded that gold and silver standards consistently outperform fiat standards. Analyzing data over many decades for a large sample of countries, they found that "every country in our sample experienced a higher rate of inflation in the period during which it was operating under a fiat standard than in the period during which it was operating under a commodity standard."
Given that the driving force of free-market capitalism is competition, it stands to reason that the best way to improve money is through currency competition. Individuals should be able to choose whether they wish to carry out their personal economic transactions using the paper currency offered by the government, or to conduct their affairs using voluntary private contracts linked to payment in gold or silver.
Legal tender laws currently favor government-issued money, putting private contracts in gold or silver at a distinct disadvantage. Contracts denominated in Federal Reserve notes are enforced by the courts, whereas contracts denominated in gold are not. Gold purchases are subject to taxes, both sales and capital gains. And while the Constitution specifies that only commodity standards are lawful -- "No state shall coin money, emit bills of credit, or make anything but gold and silver coin a tender in payment of debts" (Art. I, Sec. 10) -- it is fiat money that enjoys legal tender status and its protections.
Now is the time to challenge the exclusive monopoly of Federal Reserve notes as currency. Buyers and sellers, by mutual consent, should have access to an alternate means for settling accounts; they should be able to do business using a monetary unit of account defined in terms of gold. The existence of parallel currencies operating side-by-side on an equal legal footing would make it clear whether people had more confidence in fiat money or money redeemable in gold. If the gold-based system is preferred, it means that people fully understand that the purpose of money is to facilitate commerce, not to camouflage fiscal mismanagement.
Private gold currencies have served as the medium of exchange throughout history -- long before kings and governments took over the franchise. The initial justification for government involvement in money was to certify the weight and fineness of private gold coins. That rulers found it all too tempting to debase the money and defraud its users testifies more to the corruptive aspects of sovereign authority than to the viability of gold-based money.
Which is why government officials should not now have the last word in determining the monetary measure, especially when they have abused the privilege.
The same values that will help America regain its economic footing and get back on the path to productive growth -- honesty, reliability, accountability -- should be reflected in our money. Economists who promote the government-knows-best approach of Keynesian economics fail to comprehend the damaging consequences of spurring economic activity through a money illusion. Fiscal "stimulus" at the expense of monetary stability may accommodate the principles of the childless British economist who famously quipped, "In the long run, we're all dead." But it shortchanges future generations by saddling them with undeserved debt obligations.
There is also the argument that gold-linked money deprives the government of needed "flexibility" and could lead to falling prices. But contrary to fears of harmful deflation, the big problem is not that nominal prices might go down as production declines, but rather that dollar prices artificially pumped up by government deficit spending merely paper over the real economic situation. When the output of goods grows faster than the stock of money, benign deflation can occur -- it happened from 1880 to 1900 while the U.S. was on a gold standard. But the total price-level decline was 10% stretched over 20 years. Meanwhile, the gross domestic product more than doubled.
At a moment when the world is questioning the virtues of democratic capitalism, our nation should provide global leadership by focusing on the need for monetary integrity. One of the most serious threats to global economic recovery -- aside from inadequate savings -- is protectionism. An important benefit of developing a parallel currency linked to gold is that other countries could likewise permit their own citizens to utilize it. To the extent they did so, a common currency area would be created not subject to the insidious protectionism of sliding exchange rates.
The fiasco of the G-20 meeting in Washington last November -- it was supposed to usher in "the next Bretton Woods" -- suggests that any move toward a new international monetary system based on gold will more likely take place through the grass-roots efforts of Americans. It may already be happening at the state level. Last month, Indiana state Sen. Greg Walker introduced a bill -- "The Indiana Honest Money Act" -- which would, if enacted, allow citizens the option of paying in or receiving back gold, silver or the equivalent electronic receipt as an alternative to Federal Reserve notes for all transactions conducted with the state of Indiana.
It may turn out to be a bellwether. Certainly, it's a sign of a growing feeling in the heartland that we need to go back to sound money. We need money that works for the legitimate producers and consumers of the world -- the savers and borrowers, the entrepreneurs. Not money that works for the chiselers.
Ms. Shelton, an economist, is author of "Money Meltdown: Restoring Order to the Global Currency System" (Free Press, 1994).
By JUDY SHELTON
The Wall Street Journal full article
Let's go back to the gold standard.
If the very idea seems at odds with what is currently happening in our country -- with Congress preparing to pass a massive economic stimulus bill that will push the fiscal deficit to triple the size of last year's record budget gap -- it's because a gold standard stands in the way of runaway government spending.
Under a gold standard, if people think the paper money printed by government is losing value, they have the right to switch to gold. Fiat money -- i.e., currency with no intrinsic worth that government has decreed legal tender -- loses its value when government creates more than can be absorbed by the productive real economy. Too much fiat money results in inflation -- which pools in certain sectors at first, such as housing or financial assets, but ultimately raises prices in general.
Inflation is the enemy of capitalism, chiseling away at the foundation of free markets and the laws of supply and demand. It distorts price signals, making retailers look like profiteers and deceiving workers into thinking their wages have gone up. It pushes families into higher income tax brackets without increasing their real consumption opportunities.
In short, inflation undermines capitalism by destroying the rationale for dedicating a portion of today's earnings to savings. Accumulated savings provide the capital that finances projects that generate higher future returns; it's how an economy grows, how a society reaches higher levels of prosperity. But inflation makes suckers out of savers.
If capitalism is to be preserved, it can't be through the con game of diluting the value of money. People see through such tactics; they recognize the signs of impending inflation. When we see Congress getting ready to pay for 40% of 2009 federal budget expenditures with money created from thin air, there's no getting around it. Our money will lose its capacity to serve as an honest measure, a meaningful unit of account. Our paper currency cannot provide a reliable store of value.
So we must first establish a sound foundation for capitalism by permitting people to use a form of money they trust. Gold and silver have traditionally served as currencies -- and for good reason. A study by two economists at the Federal Reserve Bank of Minneapolis, Arthur Rolnick and Warren Weber, concluded that gold and silver standards consistently outperform fiat standards. Analyzing data over many decades for a large sample of countries, they found that "every country in our sample experienced a higher rate of inflation in the period during which it was operating under a fiat standard than in the period during which it was operating under a commodity standard."
Given that the driving force of free-market capitalism is competition, it stands to reason that the best way to improve money is through currency competition. Individuals should be able to choose whether they wish to carry out their personal economic transactions using the paper currency offered by the government, or to conduct their affairs using voluntary private contracts linked to payment in gold or silver.
Legal tender laws currently favor government-issued money, putting private contracts in gold or silver at a distinct disadvantage. Contracts denominated in Federal Reserve notes are enforced by the courts, whereas contracts denominated in gold are not. Gold purchases are subject to taxes, both sales and capital gains. And while the Constitution specifies that only commodity standards are lawful -- "No state shall coin money, emit bills of credit, or make anything but gold and silver coin a tender in payment of debts" (Art. I, Sec. 10) -- it is fiat money that enjoys legal tender status and its protections.
Now is the time to challenge the exclusive monopoly of Federal Reserve notes as currency. Buyers and sellers, by mutual consent, should have access to an alternate means for settling accounts; they should be able to do business using a monetary unit of account defined in terms of gold. The existence of parallel currencies operating side-by-side on an equal legal footing would make it clear whether people had more confidence in fiat money or money redeemable in gold. If the gold-based system is preferred, it means that people fully understand that the purpose of money is to facilitate commerce, not to camouflage fiscal mismanagement.
Private gold currencies have served as the medium of exchange throughout history -- long before kings and governments took over the franchise. The initial justification for government involvement in money was to certify the weight and fineness of private gold coins. That rulers found it all too tempting to debase the money and defraud its users testifies more to the corruptive aspects of sovereign authority than to the viability of gold-based money.
Which is why government officials should not now have the last word in determining the monetary measure, especially when they have abused the privilege.
The same values that will help America regain its economic footing and get back on the path to productive growth -- honesty, reliability, accountability -- should be reflected in our money. Economists who promote the government-knows-best approach of Keynesian economics fail to comprehend the damaging consequences of spurring economic activity through a money illusion. Fiscal "stimulus" at the expense of monetary stability may accommodate the principles of the childless British economist who famously quipped, "In the long run, we're all dead." But it shortchanges future generations by saddling them with undeserved debt obligations.
There is also the argument that gold-linked money deprives the government of needed "flexibility" and could lead to falling prices. But contrary to fears of harmful deflation, the big problem is not that nominal prices might go down as production declines, but rather that dollar prices artificially pumped up by government deficit spending merely paper over the real economic situation. When the output of goods grows faster than the stock of money, benign deflation can occur -- it happened from 1880 to 1900 while the U.S. was on a gold standard. But the total price-level decline was 10% stretched over 20 years. Meanwhile, the gross domestic product more than doubled.
At a moment when the world is questioning the virtues of democratic capitalism, our nation should provide global leadership by focusing on the need for monetary integrity. One of the most serious threats to global economic recovery -- aside from inadequate savings -- is protectionism. An important benefit of developing a parallel currency linked to gold is that other countries could likewise permit their own citizens to utilize it. To the extent they did so, a common currency area would be created not subject to the insidious protectionism of sliding exchange rates.
The fiasco of the G-20 meeting in Washington last November -- it was supposed to usher in "the next Bretton Woods" -- suggests that any move toward a new international monetary system based on gold will more likely take place through the grass-roots efforts of Americans. It may already be happening at the state level. Last month, Indiana state Sen. Greg Walker introduced a bill -- "The Indiana Honest Money Act" -- which would, if enacted, allow citizens the option of paying in or receiving back gold, silver or the equivalent electronic receipt as an alternative to Federal Reserve notes for all transactions conducted with the state of Indiana.
It may turn out to be a bellwether. Certainly, it's a sign of a growing feeling in the heartland that we need to go back to sound money. We need money that works for the legitimate producers and consumers of the world -- the savers and borrowers, the entrepreneurs. Not money that works for the chiselers.
Ms. Shelton, an economist, is author of "Money Meltdown: Restoring Order to the Global Currency System" (Free Press, 1994).
The Bailout Hoax
The current accounting of the financial system bailout at present is about $10 trillion. This includes funds approved and set aside for future liabilities not yet funded.
How much is $10 trillion?
$10 trillion would pay off 90% of the home mortages in the United States.
If the government would have sent out a $200,000 check to every homeowner, it would have been cheaper than what we have done so far.
So are these guys stupid or what?
Or What
You don't get to Washington by being stupid. It takes brains and money. And the money is provided by the very institutions that the politicians are "bailing out" at present. But let's not kid ourselves. This isn't a bailout....its a money grab, pure and simple.
This so-called financial crisis has been created, massaged and broadcast 24/7 so that the fearful sheeple will go along with whatever the politicians propose.
Under the guise of stemming this manufactured financial crisis, our hireling politicians are funneling billions to the bankers, and thus insuring our eventual financial collapse.
Why?
So that they can either ensure their re-election campaign financing, or ensure their financial well-being when back in the private sector, knowing they will be repaid for a job well done in robbing the American public.
Bottom line, these guys are mercenaries. They don't care one bit about America. These people are globalists and their desire is to bleed every last dime of profit from us before they let the whole thing collapse, allowing them to rebuild it according to their standards which, for sure, won't include the freedoms we have enjoyed for 200 years.
In the meantime ........ C. Y. A. and buy gold!
How much is $10 trillion?
$10 trillion would pay off 90% of the home mortages in the United States.
If the government would have sent out a $200,000 check to every homeowner, it would have been cheaper than what we have done so far.
So are these guys stupid or what?
Or What
You don't get to Washington by being stupid. It takes brains and money. And the money is provided by the very institutions that the politicians are "bailing out" at present. But let's not kid ourselves. This isn't a bailout....its a money grab, pure and simple.
This so-called financial crisis has been created, massaged and broadcast 24/7 so that the fearful sheeple will go along with whatever the politicians propose.
Under the guise of stemming this manufactured financial crisis, our hireling politicians are funneling billions to the bankers, and thus insuring our eventual financial collapse.
Why?
So that they can either ensure their re-election campaign financing, or ensure their financial well-being when back in the private sector, knowing they will be repaid for a job well done in robbing the American public.
Bottom line, these guys are mercenaries. They don't care one bit about America. These people are globalists and their desire is to bleed every last dime of profit from us before they let the whole thing collapse, allowing them to rebuild it according to their standards which, for sure, won't include the freedoms we have enjoyed for 200 years.
In the meantime ........ C. Y. A. and buy gold!
DOW 700!
The current dividend yield on Dow stocks is about 3%. In 1932, at the depression market bottom, the dividend yield on the Dow was at 17%.
What does that mean in terms of today's Dow?
If we are indeed in a depression, and if, as they always do, markets overreact and crash, then to reach a 17% dividend yield, the Dow Jones Industrial Average must drop from its current level of 8000 to 1,400.
That of course assumes that dividend yields remain at current levels, which is unlikely, as companies that are strapped for cash will most assuredly cut their dividends.
If dividends are cut another 50% between now and the bottom (which I believe is a pretty conservative estimate) then you can look for a Dow of around 700.
Got Gold?
What does that mean in terms of today's Dow?
If we are indeed in a depression, and if, as they always do, markets overreact and crash, then to reach a 17% dividend yield, the Dow Jones Industrial Average must drop from its current level of 8000 to 1,400.
That of course assumes that dividend yields remain at current levels, which is unlikely, as companies that are strapped for cash will most assuredly cut their dividends.
If dividends are cut another 50% between now and the bottom (which I believe is a pretty conservative estimate) then you can look for a Dow of around 700.
Got Gold?
Some Good Down-Market Investment Ideas
Excerpt from The Daily Reckoning
Bill Bonner
Haag Sherman in Barrons recently wrote “…the US government’s balance sheet looks increasingly like that of a Third World country. America’s debt-to-GDP ratio is more than 100%, including the nationalized debt of the two mortgage giants Fannie Mae and Freddie Mac. Budget deficits of $1 trillion are projected for years to come. Worse yet, America’s pension and medical obligations to the baby-boom generation and those that follow are estimated to be considerably more than $50 trillion.
“As the US government prints more money to address the crises, investors will realize that are being repaid in a much diminished currency. For the moment, foreign investors have remained relatively firm. But, at some point, foreign and domestic investors will consider the US government’s terrible fiscal position, and they will start dumping debt.”
*** That may happen next week. It may happen years from now. Remember, there are always back-eddies and countercurrents – even in the biggest flood. We’ve had a rebound, but it has been very slight. In the ’30s stocks rallied six times – more than 20% each time – before finally beginning a new bull market. And several times, investors thought the crisis was over…only to see it hit again, harder.
Our advice: stay in investments that you will not want to sell in the next ten years. What kind of investments are those? They’re investments with income and/or capital that is reliable. Forests. Down-market retailers. Apartment houses with good tenants. Farms, ranches providing foodstuffs at good prices. Basic service industries with decent revenues. Nothing fancy. The world is moving away from fancy. You want to be the low-cost provider of whatever goods or services people need.
And of course, stay in gold. Our favorite yellow metal will prove to be one of the safest bets for a store of wealth in this topsy-turvy economy. Yesterday, while Wall Street was sinking on the news of Geithner’s stimulus plan, investors flocked to their safe haven: gold. After dipping a bit on Monday, gold for April delivery jumped $21.40 to settle at $914.20 an ounce.
Bill Bonner
Haag Sherman in Barrons recently wrote “…the US government’s balance sheet looks increasingly like that of a Third World country. America’s debt-to-GDP ratio is more than 100%, including the nationalized debt of the two mortgage giants Fannie Mae and Freddie Mac. Budget deficits of $1 trillion are projected for years to come. Worse yet, America’s pension and medical obligations to the baby-boom generation and those that follow are estimated to be considerably more than $50 trillion.
“As the US government prints more money to address the crises, investors will realize that are being repaid in a much diminished currency. For the moment, foreign investors have remained relatively firm. But, at some point, foreign and domestic investors will consider the US government’s terrible fiscal position, and they will start dumping debt.”
*** That may happen next week. It may happen years from now. Remember, there are always back-eddies and countercurrents – even in the biggest flood. We’ve had a rebound, but it has been very slight. In the ’30s stocks rallied six times – more than 20% each time – before finally beginning a new bull market. And several times, investors thought the crisis was over…only to see it hit again, harder.
Our advice: stay in investments that you will not want to sell in the next ten years. What kind of investments are those? They’re investments with income and/or capital that is reliable. Forests. Down-market retailers. Apartment houses with good tenants. Farms, ranches providing foodstuffs at good prices. Basic service industries with decent revenues. Nothing fancy. The world is moving away from fancy. You want to be the low-cost provider of whatever goods or services people need.
And of course, stay in gold. Our favorite yellow metal will prove to be one of the safest bets for a store of wealth in this topsy-turvy economy. Yesterday, while Wall Street was sinking on the news of Geithner’s stimulus plan, investors flocked to their safe haven: gold. After dipping a bit on Monday, gold for April delivery jumped $21.40 to settle at $914.20 an ounce.
The Bankruptcy of the United States
When a family has an annual income of $100,000 per year, and debts of $6.9 million, and is still spending $100,000 per year more than they are earning, the question is not "WILL they go under." The only question is "WHEN will they go under.
Check out these stats I came across this afternoon on the Elliot Wave Analysis site. They are in the same proportion as the above example.
"Like every castle in the sand, like any house built of straw – or, in terms of Elliott wave analysis, like any third-wave advance – such a capital structure is not sustainable. "Stimulus package" or not, the U.S. cannot attract enough foreign capital to sustain a $1 trillion trade deficit, a $1 trillion current account deficit, net foreign debt of $15 trillion and unfunded federal mandates of $54 trillion.
According to the CIA's World Factbook, the U.S. right now is at the very bottom of the Current Account Balance list, below Haiti and Cuba. And it's no coincidence that the three countries at the top of the list – China, Germany and Japan – have made significant structural reforms to their economies to an export-based model."
BOTTOM LINE
When the US finally declares bankruptcy, your dollars will be worthless. THIS is the reason you should by gold!
Check out these stats I came across this afternoon on the Elliot Wave Analysis site. They are in the same proportion as the above example.
"Like every castle in the sand, like any house built of straw – or, in terms of Elliott wave analysis, like any third-wave advance – such a capital structure is not sustainable. "Stimulus package" or not, the U.S. cannot attract enough foreign capital to sustain a $1 trillion trade deficit, a $1 trillion current account deficit, net foreign debt of $15 trillion and unfunded federal mandates of $54 trillion.
According to the CIA's World Factbook, the U.S. right now is at the very bottom of the Current Account Balance list, below Haiti and Cuba. And it's no coincidence that the three countries at the top of the list – China, Germany and Japan – have made significant structural reforms to their economies to an export-based model."
BOTTOM LINE
When the US finally declares bankruptcy, your dollars will be worthless. THIS is the reason you should by gold!
Funny Stuff
One of the investment advisory services I subscribe to is Rick's Picks, written by ex-trader Rick Ackerman. Not only is Rick smart, but hilarious. I'd subscribe to his service even if he had no idea what he was talking about.
Anyway, yesterday, Fed Chairman Ben Bernanke gave us all a good chuckle with his Freudian slip in stating that the Fed's assets were "gold-plated secure." Here's Rick's commentary this morning on Bumbling Ben.
"...After all, what could be scarier or more depressing to investors than word that The Government is about to blow another trillion or two in yet another futile attempt to jump-start the banking system? We don’t envy them the task of convincing investors in the U.S. and abroad that the green-and-white confetti held in the vaults of U.S. banks and the Federal Reserve is actually worth something,
This is notwithstanding reassurances from Helicopter Ben that 95% of the Fed’s nearly $2 trillion balance sheet is “gold-plated secure.” You can’t make stuff like that up – he actually said “gold-plated secure.” We don’t blame the guy for sounding like a dolt every time he opens his mouth — it is his job, after all, to pretend that the central bank is in control of the situation even though everyone senses strongly otherwise. Under the circumstances, how could he not look like a fool? Perhaps Bernanke meant “gold-plated” literally? Which is to say, the alleged assets on the Fed’s balance sheet are about as “golden” as a flea-market necklace."
I'm still laughing my......
"A flea market necklace." Sounds like Rick has spent some time in the South! LOL.
Anyway, yesterday, Fed Chairman Ben Bernanke gave us all a good chuckle with his Freudian slip in stating that the Fed's assets were "gold-plated secure." Here's Rick's commentary this morning on Bumbling Ben.
"...After all, what could be scarier or more depressing to investors than word that The Government is about to blow another trillion or two in yet another futile attempt to jump-start the banking system? We don’t envy them the task of convincing investors in the U.S. and abroad that the green-and-white confetti held in the vaults of U.S. banks and the Federal Reserve is actually worth something,
This is notwithstanding reassurances from Helicopter Ben that 95% of the Fed’s nearly $2 trillion balance sheet is “gold-plated secure.” You can’t make stuff like that up – he actually said “gold-plated secure.” We don’t blame the guy for sounding like a dolt every time he opens his mouth — it is his job, after all, to pretend that the central bank is in control of the situation even though everyone senses strongly otherwise. Under the circumstances, how could he not look like a fool? Perhaps Bernanke meant “gold-plated” literally? Which is to say, the alleged assets on the Fed’s balance sheet are about as “golden” as a flea-market necklace."
I'm still laughing my......
"A flea market necklace." Sounds like Rick has spent some time in the South! LOL.
Gold: Look Past Short Term Declines
The following is an excerpt from The Final Market Bubble
Gold, traditionally a good inflation hedge, will retain its value as the major fiat currencies collapse. However, I believe there will be a chance for us to go into gold at an entry point cheaper than now, during the early stage of the economic recovery, and before inflation truly appears. When that happens, I recommend moving a sizable portion of our net worth into gold, but not so much that we would miss out on a benign recovery if the Armageddon thesis turns out to be false.
There will likely be a short-lived, but voracious, stock market rally when signs of economic recovery first appear, and we should use that opportunity to off-load certain names in our stock portfolio.
Instead of trying to get the timing exactly right, let there be humility as the aforementioned strategy is implemented, in that it should be implemented in a piece-meal fashion. I would sell a little bit of the positions that don't fit the overall strategy at each major rally of equities, and I would add a little bit to gold at each correction of the metal.
Getting back to gold, the instrument a lot of retail investors will be using for their gold investment will be the SPDR Gold ETF (GLD), because that is the simplest way one can invest in gold through regular brokerage accounts. However, I recommend that we purchase some physical gold coins or bars as well when the prices go down a bit. Ultimately, the rationale for buying gold is the same as that of the people who are stocking up on guns, ammo, and water: "just-in-case".
In the "just-in-case" scenario, which is the complete annihilation of the existing financial system, the fund company that offered the Gold ETF may not survive, and the banks where we opened our brokerage accounts may cease to exist. To fully hedge against this possibility, we will all need a little bit of physical gold, stored in several different undisclosed locations that are known to be safe.
Gold, traditionally a good inflation hedge, will retain its value as the major fiat currencies collapse. However, I believe there will be a chance for us to go into gold at an entry point cheaper than now, during the early stage of the economic recovery, and before inflation truly appears. When that happens, I recommend moving a sizable portion of our net worth into gold, but not so much that we would miss out on a benign recovery if the Armageddon thesis turns out to be false.
There will likely be a short-lived, but voracious, stock market rally when signs of economic recovery first appear, and we should use that opportunity to off-load certain names in our stock portfolio.
Instead of trying to get the timing exactly right, let there be humility as the aforementioned strategy is implemented, in that it should be implemented in a piece-meal fashion. I would sell a little bit of the positions that don't fit the overall strategy at each major rally of equities, and I would add a little bit to gold at each correction of the metal.
Getting back to gold, the instrument a lot of retail investors will be using for their gold investment will be the SPDR Gold ETF (GLD), because that is the simplest way one can invest in gold through regular brokerage accounts. However, I recommend that we purchase some physical gold coins or bars as well when the prices go down a bit. Ultimately, the rationale for buying gold is the same as that of the people who are stocking up on guns, ammo, and water: "just-in-case".
In the "just-in-case" scenario, which is the complete annihilation of the existing financial system, the fund company that offered the Gold ETF may not survive, and the banks where we opened our brokerage accounts may cease to exist. To fully hedge against this possibility, we will all need a little bit of physical gold, stored in several different undisclosed locations that are known to be safe.
Anatomy Of A Depression
excerpt from It’s a Depression, Not a Recession
In a recession, the basic plan or formula for the economy is still valid. The economy just needs a little time…and maybe a little monetary boost…before it continues growing. Typically, inventories are sold down…so a new burst of production can begin.
But in a depression, the problems are structural.
One way of understanding this is just to look at balance sheets. Whether you are a business or a family, you can only afford so much debt. When you get too much, you have stop and pay it down. And when it becomes so great you can’t pay if off – because you don’t have enough income – you have to declare bankruptcy.
A depression is when a whole economy declares bankruptcy…or should. Because it can’t pay its debts. Businesses, for example, have been built for a level of demand that no longer exists. It is not a question of waiting a few months. By the time consumers are ready to buy again, the whole economy will have moved on.
Imagine, for example, a guy who built a nationwide chain of stores just to sell iPods to teenagers. The business may have been a great success – for a while. And he took out huge loans so he could expand…and take advantage of the demand. But then comes a depression. He says to himself: ‘I’ll just get some more financing…and wait it out.’ But who’s going to lend to him? By the time the kids begin buying again, iPods will be like vinyl LPs. His business is history. His lenders have lost money. The loans should be written off and the business should be destroyed, not mummified and preserved.
A depression is when the whole economy changes its business plan, in other words. And that takes time…and creative destruction.
How much time? Well, in the United States alone there is about $6 trillion too much private debt…$1 trillion too much output capacity…and millions of “excess” workers. How long will it take to retrain, retool, and re-absorb these excesses?
We don’t know. The last depression took about 20 years…and a major war (talk about creative destruction!) Then, the United States was making the structural shift from a Japan-like capital investment-led economy…to a post-WWII consumer-led economy.
In Japan itself, its post-WWII capital investment-led boom hit a wall of creative destruction in 1990. Now, 19 years have gone by…and it is still adjusting to the new world economy.
All we know so far is that this depression has wiped out more than $30 trillion of dollars’ worth of investors’ capital. We suspect it will wipe out another $30 trillion worth before its creative destruction is over.
Our guess is that it will also destroy the U.S. consumer-economy model…and the dollar-based world monetary system.........
........But first, we turn to the news. We’ll see what a depression looks like – just from reading the headlines.
The Dow fell 121 points yesterday. That leaves only about 4,000 or 5,000 more to go…before the index reaches its depression bottom between 3,000 and 5,000. That could take a long time…depressions always take time. It might not happen before 2010…or even before 2020.
In a recession, the basic plan or formula for the economy is still valid. The economy just needs a little time…and maybe a little monetary boost…before it continues growing. Typically, inventories are sold down…so a new burst of production can begin.
But in a depression, the problems are structural.
One way of understanding this is just to look at balance sheets. Whether you are a business or a family, you can only afford so much debt. When you get too much, you have stop and pay it down. And when it becomes so great you can’t pay if off – because you don’t have enough income – you have to declare bankruptcy.
A depression is when a whole economy declares bankruptcy…or should. Because it can’t pay its debts. Businesses, for example, have been built for a level of demand that no longer exists. It is not a question of waiting a few months. By the time consumers are ready to buy again, the whole economy will have moved on.
Imagine, for example, a guy who built a nationwide chain of stores just to sell iPods to teenagers. The business may have been a great success – for a while. And he took out huge loans so he could expand…and take advantage of the demand. But then comes a depression. He says to himself: ‘I’ll just get some more financing…and wait it out.’ But who’s going to lend to him? By the time the kids begin buying again, iPods will be like vinyl LPs. His business is history. His lenders have lost money. The loans should be written off and the business should be destroyed, not mummified and preserved.
A depression is when the whole economy changes its business plan, in other words. And that takes time…and creative destruction.
How much time? Well, in the United States alone there is about $6 trillion too much private debt…$1 trillion too much output capacity…and millions of “excess” workers. How long will it take to retrain, retool, and re-absorb these excesses?
We don’t know. The last depression took about 20 years…and a major war (talk about creative destruction!) Then, the United States was making the structural shift from a Japan-like capital investment-led economy…to a post-WWII consumer-led economy.
In Japan itself, its post-WWII capital investment-led boom hit a wall of creative destruction in 1990. Now, 19 years have gone by…and it is still adjusting to the new world economy.
All we know so far is that this depression has wiped out more than $30 trillion of dollars’ worth of investors’ capital. We suspect it will wipe out another $30 trillion worth before its creative destruction is over.
Our guess is that it will also destroy the U.S. consumer-economy model…and the dollar-based world monetary system.........
........But first, we turn to the news. We’ll see what a depression looks like – just from reading the headlines.
The Dow fell 121 points yesterday. That leaves only about 4,000 or 5,000 more to go…before the index reaches its depression bottom between 3,000 and 5,000. That could take a long time…depressions always take time. It might not happen before 2010…or even before 2020.
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