Marc Faber sees interest rates going up within three months
By : Peter J. Cooper
Editor, Arabian Money
One of the wisest and most trusted investment advisors in the world, Dr Marc Faber says that interest rates will be going up within three months after the bond market passes ‘an important inflection point’.
This is exactly the opposite of what the US Federal Reserve is promising, and is bound to turn global financial markets upside down. Higher interest rates will strengthen the dollar rather than weaken it, while the value of bond holdings all over the globe will be decimated.
Stock market impact
Stocks look to be a winner until you consider the impact of higher interest rates on an already weakened global economy, particularly the US, Japan and Europe. For one thing real estate prices will fall sharply and bank balance sheets will be once again seriously impaired. Stock markets will therefore come down. Rising interest rates are not good news for equities.
A rise in the cost of money is the last thing that the US central bank wants to achieve right now. However, interest rates can only be artificially held at record lows for so long. Eventually the weight of new money entering the system becomes too much for it to bear any longer and there is a tipping point for bonds.
Professor Niall Ferguson, the celebrity historian is another leading financial pundit to take this view, and it is no surprise that Dr Marc Faber is also an ardent student of history. For this bond market reaction is nothing new. It has happened many, many times before.
Basically money creation will always eventually overwhelm the very instrument used to create it. The pattern that follows is first a very sharp deflation of real asset prices and then later a hyperinflation of asset prices which in extreme scenarios – like Weimar Germany – requires the issuing of a new currency.
Faber’s usually right
Dr Marc Faber’s track record for calling such major market moves has been outstanding in the decade that he has been known to ArabianMoney. Sometimes he is like the boy in the parable of the emperor with no clothes, and what he says should be blinding obvious but nobody will admit it.
Today the bond market is an obvious bubble. Interest rates are perilously low and this completely distorts the investment world leaving savers with little income. But this sort of financial conjuring trick only works for so long and the saucerer’s plates eventually all come tumbling down.
Then savers get their interest again. Real estate, stocks and bonds take a big hit from higher interest rates. The dollar at first will surge in value, probably depressing precious metal prices too in the process, although they are increasingly just another currency, albeit one that pays no interest.
Fed response
But the Fed response to this crisis will be to learn nothing and print even more money, and that will finally result in runaway inflation. Only then will you want to be invested in stocks to rise with this tide.
This looks like being a very tough phase to be invested in any major asset class so the main advice seems to be to stay liquid, ironically being long the dollar seems the best defense against Fed action specifically designed to weaken the greenback.
But you would want to convert that cash back into real assets like gold, silver, houses and stocks before the great inflation. In any case that is ArabianMoney’s interpretation of how rising interest rates will play out, assuming that Marc Faber is right again.
However, for the record Dr Marc Faber has stock markets correcting in October/November in his latest newsletter and does not see stocks as a good investment now as suggested in an inaccurate Bloomberg report yesterday.
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Close Call For US Banks
Has Gold Peaked?
by Jullian D. Phillips
We do see some saying it is time to sell gold. We know of one fund that has shorted gold. So our search for reasons to sell is sincere. With that in mind, these are some of the questions we are asking:
- Has uncertainty and instability changed leaving us confident and certain of a stable future?
- Have the nations agreed a sound, effective, currency system that caters for local national problems on the Balance of Payments front?
- Have they agreed systems that effectively enforce this system, so that it is in national interests to subject themselves to that system?
- Has the global economy in all its major parts returned to real growth where economic imbalances are removed?
- Are we certain that the Sovereign Debt crises are over?
- Do we expect the shift in world wealth and power to Asia to be smooth and trouble free?
- Have the votes at the I.M.F. been changed to fully accommodate India and China's proportion of economic power or will the U.S. remain in charge irrespective of such changes??
- Have central banks turned away from gold confident and fully reliant on global currencies?
If your answers are 'yes' to these then it is time to sell your gold.
Clearly then we see no reason to believe that gold has peaked. It's not about a technical picture dictating supports and resistances it's about a globally changing and broadening market that is altering the parameters of the technical picture. With investors like central banks uninterested in price, only acquiring gold at any price, how can the technical picture dominate?
So, if gold has not peaked what lies ahead for gold and silver?
Julian D. W. Phillips
Gold/Silver Forecaster – Global Watch
GoldForecaster.com
Gold Outlook: Short and Long Term
(Our friend Chuck Cohen, a New York-based financial consultant and a raging bull on bullion, recently turned cautious on precious metals – but extremely cautious on stocks, which he says are setting up for a crash that could be worse than last May’s. The report below was prepared by him more than a week ago, but Chuck notes that sentiment extremes in gold and silver have corrected nicely since. Although he can’t bring himself to turn as bearish on bullion as he is on stocks, Chuck says gold is nonetheless likely to violate round-number support – i.e., $1300 – before the shakeout subsides. If you’d like a free copy of his latest report, click here.)
There have been troubling signs as well in precious metals. Bernstein’s Daily Sentiment Index on both gold and silver recently climbed into the mid-90s. In addition, the volume in silver and gold ETFs recently jumped significantly. Another worrisome sign is the lack of confirmation by the precious metals shares, especially over the past few weeks, and the low volume in the shares. Given the breakout of the HUI through 500 and $1350 gold, it is logical that the listed shares would have continued to move higher, but this has not been the case. On the bright side, exploration stocks have resisted the recent tide of selling.
Right now, I believe the odds strongly favor a drop in the price of gold, perhaps back as low as $1265, but likely under $1300. [December Comex Gold fell as low as $1318.20 yesterday. Rick’s Picks is forecasting more weakness, to at least 1291.60, in the days ahead. RA ] Because it has risen non-stop from $18, silver should decline even more.
‘Massively Higher’ Bullion Eventually
Finally, I want to make clear that my big-picture view has not changed at all. I believe we are headed for dire, historic inflation and eventually into hyperinflation. We are past the point of the danger of a deflationary crash that many are still adhering to [your editor, for one]. Gold and silver, and especially mining shares, will ultimately reach ridiculous heights as the world currency crisis continues to unfold. But as we have seen, corrections do come — usually when sentiment reaches levels such as we have seen recently.
(Our friend Chuck Cohen, a New York-based financial consultant and a raging bull on bullion, recently turned cautious on precious metals – but extremely cautious on stocks, which he says are setting up for a crash that could be worse than last May’s. The report below was prepared by him more than a week ago, but Chuck notes that sentiment extremes in gold and silver have corrected nicely since. Although he can’t bring himself to turn as bearish on bullion as he is on stocks, Chuck says gold is nonetheless likely to violate round-number support – i.e., $1300 – before the shakeout subsides. If you’d like a free copy of his latest report, click here.)
There have been troubling signs as well in precious metals. Bernstein’s Daily Sentiment Index on both gold and silver recently climbed into the mid-90s. In addition, the volume in silver and gold ETFs recently jumped significantly. Another worrisome sign is the lack of confirmation by the precious metals shares, especially over the past few weeks, and the low volume in the shares. Given the breakout of the HUI through 500 and $1350 gold, it is logical that the listed shares would have continued to move higher, but this has not been the case. On the bright side, exploration stocks have resisted the recent tide of selling.
Right now, I believe the odds strongly favor a drop in the price of gold, perhaps back as low as $1265, but likely under $1300. [December Comex Gold fell as low as $1318.20 yesterday. Rick’s Picks is forecasting more weakness, to at least 1291.60, in the days ahead. RA ] Because it has risen non-stop from $18, silver should decline even more.
‘Massively Higher’ Bullion Eventually
Finally, I want to make clear that my big-picture view has not changed at all. I believe we are headed for dire, historic inflation and eventually into hyperinflation. We are past the point of the danger of a deflationary crash that many are still adhering to [your editor, for one]. Gold and silver, and especially mining shares, will ultimately reach ridiculous heights as the world currency crisis continues to unfold. But as we have seen, corrections do come — usually when sentiment reaches levels such as we have seen recently.
Hunker Down!
Recently, Doug Casey of Casey Research was interviewed and the topic of Presidents came up. Here is a bit of what Doug had to say.
Q: Doug, we spoke about holidays in general last time, but I've heard you say, specifically, that you find Presidents' Day particularly objectionable. I know that's not just you being a gadfly, but a comment driven by your study of history and your thinking on psychology, sociology, and economics. It seems worth following up on.
Doug: Yes, that's true. For one thing, as we discussed in our conversation on anarchy, political power tends to attract the worst of people, the four percent of any society that's sociopathic. So declaring holidays to honor these people is a tragic mistake in and of itself. It, like so many things are in our world, is completely perverse, as people celebrate and reward mass murderers, industrial-scale thugs, and con-men who fleece entire societies.
Who is studied and idolized in the history books? Is it people like Edison, the Wright Brothers, Leonardo, Newton, Ford, or Pasteur? Not really; they just get a passing nod. The ones who get statues built to them and are engraved on the collective memory are conquerors and mass murderers – Alexander, Caesar, Genghis Khan, Napoleon, and a whole bunch of U.S. presidents.
Q: Do you ever get to thinking that perhaps people get the government they deserve?
Doug: I do indeed. People who vote for free lunches – knowing full well that someone needs to pay for them, and they are fine with that as long as the someone is someone besides themselves – deserve to become tax slaves for those who view them as milk cows. If economically ignorant, greedy, and shortsighted people vote for bad government, they should start by looking in the mirror when they wonder what went wrong. But few people are that introspective. Further, most people apparently lack a real center, an ego in the good sense. That's why they create these false gods to worship; by becoming part of a group, they think they gain worth. Pity the poor fools…
There's no doubt in my mind that the U.S. has devolved to that level. Something like 43 million people get their food from the government, about half of workers pay no income taxes (although I wish no one did, of course), about half are significant net recipients of government funds… and many millions more are employed directly by the state. It's why I no longer refer to "America" when discussing the U.S. – America was a wonderful idea, which unfortunately no longer exists.
A bad leader can bring out the worst in people, making them think the government is a cornucopia; and then the people demand more of the same from future leaders. It's a downward spiral – never, for some reason, an upward spiral. It's why, after Augustus, Rome never returned to being a republic, even though they pretended – just like the U.S. does today. My conclusion is that people basically get the kind of government they deserve. Which is a sad testimony to the degraded state of the average person today.
[end of interview]
So, to all my conservative Bible-believing friends out there who think these upcoming elections might have a chance of bringing back the old America we grew up in, you are missing the bigger picture. Truth is, the problem is with the people, not the politicians, and no amount of political action is going to change what we have devolved into.
If you really want to make a difference then start at the individual level. When we begin with ourselves, changing our own hearts, one at a time, then, we might have a chance. Short of that, it's all over but the cryin'. "Go ye therefore......" and bring about change one person at a time.
Until then, buy gold and hunker down! It's about to get ugly.
DT.
Recently, Doug Casey of Casey Research was interviewed and the topic of Presidents came up. Here is a bit of what Doug had to say.
Q: Doug, we spoke about holidays in general last time, but I've heard you say, specifically, that you find Presidents' Day particularly objectionable. I know that's not just you being a gadfly, but a comment driven by your study of history and your thinking on psychology, sociology, and economics. It seems worth following up on.
Doug: Yes, that's true. For one thing, as we discussed in our conversation on anarchy, political power tends to attract the worst of people, the four percent of any society that's sociopathic. So declaring holidays to honor these people is a tragic mistake in and of itself. It, like so many things are in our world, is completely perverse, as people celebrate and reward mass murderers, industrial-scale thugs, and con-men who fleece entire societies.
Who is studied and idolized in the history books? Is it people like Edison, the Wright Brothers, Leonardo, Newton, Ford, or Pasteur? Not really; they just get a passing nod. The ones who get statues built to them and are engraved on the collective memory are conquerors and mass murderers – Alexander, Caesar, Genghis Khan, Napoleon, and a whole bunch of U.S. presidents.
Q: Do you ever get to thinking that perhaps people get the government they deserve?
Doug: I do indeed. People who vote for free lunches – knowing full well that someone needs to pay for them, and they are fine with that as long as the someone is someone besides themselves – deserve to become tax slaves for those who view them as milk cows. If economically ignorant, greedy, and shortsighted people vote for bad government, they should start by looking in the mirror when they wonder what went wrong. But few people are that introspective. Further, most people apparently lack a real center, an ego in the good sense. That's why they create these false gods to worship; by becoming part of a group, they think they gain worth. Pity the poor fools…
There's no doubt in my mind that the U.S. has devolved to that level. Something like 43 million people get their food from the government, about half of workers pay no income taxes (although I wish no one did, of course), about half are significant net recipients of government funds… and many millions more are employed directly by the state. It's why I no longer refer to "America" when discussing the U.S. – America was a wonderful idea, which unfortunately no longer exists.
A bad leader can bring out the worst in people, making them think the government is a cornucopia; and then the people demand more of the same from future leaders. It's a downward spiral – never, for some reason, an upward spiral. It's why, after Augustus, Rome never returned to being a republic, even though they pretended – just like the U.S. does today. My conclusion is that people basically get the kind of government they deserve. Which is a sad testimony to the degraded state of the average person today.
[end of interview]
So, to all my conservative Bible-believing friends out there who think these upcoming elections might have a chance of bringing back the old America we grew up in, you are missing the bigger picture. Truth is, the problem is with the people, not the politicians, and no amount of political action is going to change what we have devolved into.
If you really want to make a difference then start at the individual level. When we begin with ourselves, changing our own hearts, one at a time, then, we might have a chance. Short of that, it's all over but the cryin'. "Go ye therefore......" and bring about change one person at a time.
Until then, buy gold and hunker down! It's about to get ugly.
DT.
Scary Stuff
One of the few technical guys I pay attention to is Rick Ackerman. Here's an interview with Rick from earlier this week where he talks about the ultimate breakdown of the dollar and the US bond market. He states that it probably won't be a gradual breakdown but that we will just wake up one morning and the dollar will be no more. THAT'S scary stuff!
One of the few technical guys I pay attention to is Rick Ackerman. Here's an interview with Rick from earlier this week where he talks about the ultimate breakdown of the dollar and the US bond market. He states that it probably won't be a gradual breakdown but that we will just wake up one morning and the dollar will be no more. THAT'S scary stuff!
Police-State on the horizon
The following is an excerpt from From Global Depression to Global Governance: The role of the corporate elites' secretive global think tanks by Andrew Gavin Marshall.
Already, towns, cities, and states across America are resorting to drastic actions to reduce their debts, such as closing fire stations, scaling back trash collection, turning off street lights, ending bus services and public transportation, cutting back on library hours or closing them altogether, school districts cutting down the school day, week or year. Simultaneously, this is occurring with a dramatic increase in the rate of privatizations or “public-private partnerships” in which even libraries are being privatized.
No wonder then, that this month, the Managing Director of the IMF warned that America and Europe, in the midst of the worst jobs crisis since the Great Depression, face an “explosion of social unrest.” Just yesterday, Europe experienced a wave of mass protests and social unrest in opposition to ‘austerity measures’, with a general strike in Spain involving millions of people, and a march on the EU headquarters in Brussels of nearly 100,000 people. As social unrest spreads, governments will likely react – as we saw in the case of the G20 in Toronto – with oppressive police state measures. Here, we see the true relevance of the emergence of ‘Homeland Security States’, designed not to protect people from terrorists, but to protect the powerful from the people. [emphasis mine]
So while things have never seemed quite so bleak, there is a dim and growing beacon of hope, in what Zbigniew Brzezinski has termed as the greatest threat to elite interests everywhere – the ‘global political awakening’. The global political awakening is representative of the fact that for the first time in all of human history, mankind is politically awakened and stirring, activated and aware, and that generally – as Zbigniew Brzezinski explains – generally is aware of global inequalities, exploitation, and disrespect. This awakening is largely the result of the information revolution – thus revealing the contradictory nature of the globalization project – as while it globalizes power and oppression, so too does it globalize awareness and opposition. This awakening is the greatest threat to entrenched elite interests everywhere. The awakening, while having taken root in the global south – already long subjected to exploitation and devastation – is now stirring in the west, and will grow as the economy crumbles. As the middle classes realize their consumption was an illusion of wealth, they will seek answers and demand true change, not the Wall Street packaged ‘brand-name’ change of Obama Inc., but true, inspired, and empowering change.
The following is an excerpt from From Global Depression to Global Governance: The role of the corporate elites' secretive global think tanks by Andrew Gavin Marshall.
Already, towns, cities, and states across America are resorting to drastic actions to reduce their debts, such as closing fire stations, scaling back trash collection, turning off street lights, ending bus services and public transportation, cutting back on library hours or closing them altogether, school districts cutting down the school day, week or year. Simultaneously, this is occurring with a dramatic increase in the rate of privatizations or “public-private partnerships” in which even libraries are being privatized.
No wonder then, that this month, the Managing Director of the IMF warned that America and Europe, in the midst of the worst jobs crisis since the Great Depression, face an “explosion of social unrest.” Just yesterday, Europe experienced a wave of mass protests and social unrest in opposition to ‘austerity measures’, with a general strike in Spain involving millions of people, and a march on the EU headquarters in Brussels of nearly 100,000 people. As social unrest spreads, governments will likely react – as we saw in the case of the G20 in Toronto – with oppressive police state measures. Here, we see the true relevance of the emergence of ‘Homeland Security States’, designed not to protect people from terrorists, but to protect the powerful from the people. [emphasis mine]
So while things have never seemed quite so bleak, there is a dim and growing beacon of hope, in what Zbigniew Brzezinski has termed as the greatest threat to elite interests everywhere – the ‘global political awakening’. The global political awakening is representative of the fact that for the first time in all of human history, mankind is politically awakened and stirring, activated and aware, and that generally – as Zbigniew Brzezinski explains – generally is aware of global inequalities, exploitation, and disrespect. This awakening is largely the result of the information revolution – thus revealing the contradictory nature of the globalization project – as while it globalizes power and oppression, so too does it globalize awareness and opposition. This awakening is the greatest threat to entrenched elite interests everywhere. The awakening, while having taken root in the global south – already long subjected to exploitation and devastation – is now stirring in the west, and will grow as the economy crumbles. As the middle classes realize their consumption was an illusion of wealth, they will seek answers and demand true change, not the Wall Street packaged ‘brand-name’ change of Obama Inc., but true, inspired, and empowering change.
Global Money Blowout Trumps Fiscal Austerity
by Rick Ackerman on October 25, 2010
With China’s central bank in tightening mode, the bad guys had their best chance in months to knock down the price of gold last week. Their best efforts proved feeble, however: When the dust had settled, gold quotes were down just five percent from the record $1388 peak recorded on October 14. And although Silver fared somewhat worse, falling eight percent over the last seven days, even in the throes of this relative weakness, Comex futures resisted getting shoved lower for more than a single day at a time. “Up” days alternated with “down” days, suggesting that the playground bullies of the precious metals world – i.e., Fed-sanctioned bullion bankers — were having trouble suppressing the price of precious metals, gold in particular. Indeed, if last week’s moderate decline was the worst damage they could inflict on bullion when the news was on their side, then we shouldn’t doubt that precious-metal prices will soon be bounding higher once again.
The announcement last week that China’s central bank would boost the yuan lending rate by 25 basis points was like a kick in the teeth to global markets that had been wafting blithely skyward on the prospect of perpetual global easing. China has good reason to shun the party, however, since, even in weak fiscal quarters, GDP growth is running at eight percent or better. Last week’s announcement was an attempt to rein in speculation and to quiet inflation, and it should have surprised no one that bourses around the world reacted hysterically, as is their entrenched habit even when the news is stale from anticipation. This time the dollar’s response was worse than merely hysterical, however, since the greenback initially rose sharply on news that should have caused it to fall (i.e., stronger yuan = weaker dollar). Go figure — and heaven help us if the prop-desk yobs who drove up the buck that day did so under the pale illusion that they were fleeing to safety/quality.
Mass Delusion
Whatever the case, gold and silver came down because speculators believe that China, the world’s remaining economic engine, will continue to tighten in the months ahead. That would be deflationary, the thinking goes, and bullion prices should ease in anticipation. The thinking is wrong, however, for the simple reason that the move toward fiscal austerity around the world, especially in euroland, is no match for the rampant monetary stimulus that is being used to counter the worst global recession since the 1930s. Beggaring-thy-neighbor via currrency devaluations is not merely in vogue, it is the Tulip-o-mania of these times. If such a fiscal and monetary environment is capable of causing the price of gold and silver to fall, then pigs can fly and the world is entering a period of unprecedented peace, prosperity, harmony, with high-paying jobs for everyone. And if you believe that, you should be hoarding all the paper money you can get your hands on, and stuffing it in your mattress and in Treasury Bills and Notes that yield almost nothing. For our part, we’ll put out trust in gold and silver, which for the last decade have climbed steadily in value no matter what investment story was in vogue, regardless of whether it was inflation or deflation that we feared, and even as the world’s financial system edged toward the darkest imaginable abyss.
SUBSCRIBE TO RICK'S FORECASTS
by Rick Ackerman on October 25, 2010
With China’s central bank in tightening mode, the bad guys had their best chance in months to knock down the price of gold last week. Their best efforts proved feeble, however: When the dust had settled, gold quotes were down just five percent from the record $1388 peak recorded on October 14. And although Silver fared somewhat worse, falling eight percent over the last seven days, even in the throes of this relative weakness, Comex futures resisted getting shoved lower for more than a single day at a time. “Up” days alternated with “down” days, suggesting that the playground bullies of the precious metals world – i.e., Fed-sanctioned bullion bankers — were having trouble suppressing the price of precious metals, gold in particular. Indeed, if last week’s moderate decline was the worst damage they could inflict on bullion when the news was on their side, then we shouldn’t doubt that precious-metal prices will soon be bounding higher once again.
The announcement last week that China’s central bank would boost the yuan lending rate by 25 basis points was like a kick in the teeth to global markets that had been wafting blithely skyward on the prospect of perpetual global easing. China has good reason to shun the party, however, since, even in weak fiscal quarters, GDP growth is running at eight percent or better. Last week’s announcement was an attempt to rein in speculation and to quiet inflation, and it should have surprised no one that bourses around the world reacted hysterically, as is their entrenched habit even when the news is stale from anticipation. This time the dollar’s response was worse than merely hysterical, however, since the greenback initially rose sharply on news that should have caused it to fall (i.e., stronger yuan = weaker dollar). Go figure — and heaven help us if the prop-desk yobs who drove up the buck that day did so under the pale illusion that they were fleeing to safety/quality.
Mass Delusion
Whatever the case, gold and silver came down because speculators believe that China, the world’s remaining economic engine, will continue to tighten in the months ahead. That would be deflationary, the thinking goes, and bullion prices should ease in anticipation. The thinking is wrong, however, for the simple reason that the move toward fiscal austerity around the world, especially in euroland, is no match for the rampant monetary stimulus that is being used to counter the worst global recession since the 1930s. Beggaring-thy-neighbor via currrency devaluations is not merely in vogue, it is the Tulip-o-mania of these times. If such a fiscal and monetary environment is capable of causing the price of gold and silver to fall, then pigs can fly and the world is entering a period of unprecedented peace, prosperity, harmony, with high-paying jobs for everyone. And if you believe that, you should be hoarding all the paper money you can get your hands on, and stuffing it in your mattress and in Treasury Bills and Notes that yield almost nothing. For our part, we’ll put out trust in gold and silver, which for the last decade have climbed steadily in value no matter what investment story was in vogue, regardless of whether it was inflation or deflation that we feared, and even as the world’s financial system edged toward the darkest imaginable abyss.
SUBSCRIBE TO RICK'S FORECASTS
A Gold Bubble? Ha ha ha ha ha ha .......
The following is an excerpt from Eric Sprott's recent commentary entitled No bubble as gold, silver rise on U.S. dollar woes.
The following is an excerpt from Eric Sprott's recent commentary entitled No bubble as gold, silver rise on U.S. dollar woes.
With the economic outlook deteriorating, more quantitative easing on the horizon globally, currency unrest mounting everywhere and physical supplies of gold and silver dwindling, the powers-that-be have their work cut out for them if they hope to keep the prices of gold and silver in check.
The suggestion that gold is in a bubble phase is the latest tactic of the anti-gold crowd, whose predictions, incidentally, for the price of gold and silver have now been consistently wrong for 10 years.
Jimmy Rogers, who is one of the world's leading authorities on commodities, dealth with the bubble issue recently by recounting and interesting anecdote. While addressing a group of high-end money managers, he inquired as to how many of them held gold or silver in their accounts and, remarkable, 75% replied that they had never owned either precious metal.
As far as I'm concerned, that put to rest any idea that we are even remotely close to a bubble in gold or silver. When gold is trading at several multiples of the current price at some point in the future, you can be assured that every single person at a similar gathering would be long and then discussion of a bubble might be legitimate. In my considered opinion, we are many years and thousands of dollars in price away from that debate.
The suggestion that gold is in a bubble phase is the latest tactic of the anti-gold crowd, whose predictions, incidentally, for the price of gold and silver have now been consistently wrong for 10 years.
Jimmy Rogers, who is one of the world's leading authorities on commodities, dealth with the bubble issue recently by recounting and interesting anecdote. While addressing a group of high-end money managers, he inquired as to how many of them held gold or silver in their accounts and, remarkable, 75% replied that they had never owned either precious metal.
As far as I'm concerned, that put to rest any idea that we are even remotely close to a bubble in gold or silver. When gold is trading at several multiples of the current price at some point in the future, you can be assured that every single person at a similar gathering would be long and then discussion of a bubble might be legitimate. In my considered opinion, we are many years and thousands of dollars in price away from that debate.
FDIC Called On To Put Bank Of America Into Receivership
Charging that the ongoing foreclosure fraud epidemic is the work of precisely the same unrepentant bank officers whose fraudulent mortgage schemes crashed the financial system in the first place, two leading critics of the financial industry are calling on the FDIC to put some of the nation's biggest banks into receivership -- starting with the Bank of America -- and make them clean house.
William K. Black, a former regulator and white-collar crime expert who cracked down on massive fraud during the savings and loan scandal of the 1980s, and his fellow economics professor at the University of Missouri-Kansas City, L. Randall Wray, write in the Huffington Post that it's time to "foreclose on the foreclosure fraudsters". They write:
The lenders, officers, and professional that directed, participated in, and profited from the fraudulent loans and securities should be prevented from causing further damage to the victims of their frauds, through fraudulent foreclosures.
They argue that, far from being a coincidence, massive foreclosure fraud "is the necessary outcome of the epidemic of mortgage fraud that began early this decade." The reason for that:
The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents... Now, only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents.... Foreclosure fraud is the only thing standing between the banks and Armageddon."
Charging that the ongoing foreclosure fraud epidemic is the work of precisely the same unrepentant bank officers whose fraudulent mortgage schemes crashed the financial system in the first place, two leading critics of the financial industry are calling on the FDIC to put some of the nation's biggest banks into receivership -- starting with the Bank of America -- and make them clean house.
William K. Black, a former regulator and white-collar crime expert who cracked down on massive fraud during the savings and loan scandal of the 1980s, and his fellow economics professor at the University of Missouri-Kansas City, L. Randall Wray, write in the Huffington Post that it's time to "foreclose on the foreclosure fraudsters". They write:
The lenders, officers, and professional that directed, participated in, and profited from the fraudulent loans and securities should be prevented from causing further damage to the victims of their frauds, through fraudulent foreclosures.
They argue that, far from being a coincidence, massive foreclosure fraud "is the necessary outcome of the epidemic of mortgage fraud that began early this decade." The reason for that:
The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents... Now, only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents.... Foreclosure fraud is the only thing standing between the banks and Armageddon."
Only Fools Vote Republican or Democrat
by David Tanner
I always like to start out the week by making as many people mad as I can, and I am sure the title to this post will do just that!
However, I CAN back it up.
The Great Depression and our current depression were both caused by excessive credit expansion. I will leave it to you to decide which party was responsible.
Keep voting for the two major parties and you will keep getting the same results. Really folks, this is not that hard!
So, whether you are a tree-hugging commie-lib Democrat, or a naive right-wing conservative Republican, do America a favor and start thinking for yourself! Because if you keep drinking the coolaid that the two major parties are serving you, you can kiss our way of life goodbye.
Of course, we know this isn't going to happen as Americans are too lazy to actually read, study and think for themselves, so keep buying gold, and look forward to the soon-aproaching days when WE will be living in the big houses on the hill, while the former American middle class are calling cardboard boxes "home."
Have a great week!
by David Tanner
I always like to start out the week by making as many people mad as I can, and I am sure the title to this post will do just that!
However, I CAN back it up.
The Great Depression and our current depression were both caused by excessive credit expansion. I will leave it to you to decide which party was responsible.
Keep voting for the two major parties and you will keep getting the same results. Really folks, this is not that hard!
So, whether you are a tree-hugging commie-lib Democrat, or a naive right-wing conservative Republican, do America a favor and start thinking for yourself! Because if you keep drinking the coolaid that the two major parties are serving you, you can kiss our way of life goodbye.
Of course, we know this isn't going to happen as Americans are too lazy to actually read, study and think for themselves, so keep buying gold, and look forward to the soon-aproaching days when WE will be living in the big houses on the hill, while the former American middle class are calling cardboard boxes "home."
Have a great week!
Richard Russell - Gold Action Knocks Out Weak Hands
With gold correcting, in this week’s latest commentaries, the Godfather of newsletter writers Richard Russell stated, “Probably the best picture of gold is seen in the weekly chart (above). I'm using GLD as a proxy for gold. It looks to me as though gold could decline until it has reached the oversold state, hopefully above the rising blue trendline. There were just too many consecutive weeks of rise without a correction. Now we are getting the correction.”
“As for gold, December gold lost 36 points on Tuesday's sell-off. On Wednesday gold recovered just one-quarter of its Tuesday losses, with gold closing near its high for the day. Today, Thursday, gold continues its correction. This is the gut-check which knocks out most of the "Johnny come latelies." Too many advertisements have appeared telling the public how to "solve your retirement problems by buying gold.” When it looks too easy, the market gives you something to calm your enthusiasm.
"No tree grows to the sky." Gold has risen an astounding ten out of the last eleven weeks. Therefore, it's only natural that traders are betting for a correction. For this reason, gold is down almost every night in the after-market as traders ready themselves for the long expected correction -- the correction that never seemed to come.
However, the fact is that gold is heavily overbought and the dollar is extremely oversold. I'm thinking that the resolution of this puzzle could be an extended period of consolidation in gold, in other words, a long sideways movement, preparatory to the next upward leg in gold. Consolidations often start with a sharp break, such as the one we witnessed (Tuesday).”
With gold correcting, in this week’s latest commentaries, the Godfather of newsletter writers Richard Russell stated, “Probably the best picture of gold is seen in the weekly chart (above). I'm using GLD as a proxy for gold. It looks to me as though gold could decline until it has reached the oversold state, hopefully above the rising blue trendline. There were just too many consecutive weeks of rise without a correction. Now we are getting the correction.”
“As for gold, December gold lost 36 points on Tuesday's sell-off. On Wednesday gold recovered just one-quarter of its Tuesday losses, with gold closing near its high for the day. Today, Thursday, gold continues its correction. This is the gut-check which knocks out most of the "Johnny come latelies." Too many advertisements have appeared telling the public how to "solve your retirement problems by buying gold.” When it looks too easy, the market gives you something to calm your enthusiasm.
"No tree grows to the sky." Gold has risen an astounding ten out of the last eleven weeks. Therefore, it's only natural that traders are betting for a correction. For this reason, gold is down almost every night in the after-market as traders ready themselves for the long expected correction -- the correction that never seemed to come.
However, the fact is that gold is heavily overbought and the dollar is extremely oversold. I'm thinking that the resolution of this puzzle could be an extended period of consolidation in gold, in other words, a long sideways movement, preparatory to the next upward leg in gold. Consolidations often start with a sharp break, such as the one we witnessed (Tuesday).”
Let's Talk "The Fed"
I am a political athiest, so don't misconstrue that I am passing this article on as a political statement. It is not. But the commentary on The Fed toward the end of the article bears watching closely by everyone that is concerned about the safety of their investments.
Politics as Usual - or Is It Revolution?
by Rick Ackerman
Here in Colorado, it’s especially difficult to escape the vitriol and mudslinging of Campaign 2010. The closely watched Senatorial race between Democrat Michael Bennett and Republican Ken Buck has attracted a torrent of out-of-state money, and it sometimes seems as though all of it, a reported $750,000 a day, is being used to finance the attack ads that have come to dominate the local airwaves. Elsewhere in the country, it’s the same unpretty story — no doubt in part because Democratic candidates would rather not talk about, much less defend, President Obama’s heavy-handed initiatives. Thus, in the last few days alone do we find one Republican smeared with the charge of rape, and another, Rand Paul, accused of having tied up a woman 30 years ago and commanding her to worship a false idol. If you’ve been following the news, you know we didn’t make this up. Even the President got into the slimy, suppurating spirit of things recently, accusing the U.S. Chamber of Commerce of taking foreign money to back right-leaning candidates. But even the New York Times wasn’t buying it — nor, apparently, was anyone else — and it now appears the mainstream news media is simply going to let the issue die before their Anointed One makes even more of a fool of himself.
And yet, putting aside all of this toxic sludge, we find ourselves positively excited about the possibility there’s a revolution brewing and that actual political change could occur as a result of the election. Yes, we know, it doesn’t much matter whether the country elects Republicans or Democrats — the long-term results will always be roughly the same. But when we talk about revolution, it has less to do with changes in the political make-up of the House and Senate than with vastly larger changes taking shape in the hearts and minds of the electorate. For one, if conservative candidates romp, as seems likely, the mainstream news media (MSM) will have to face up to the reasons. Remember, it wasn’t long ago that they were soft-peddling Obama’s line that he simply had not communicated his ideas with sufficient clarity. And before that, they carried his water with the argument that many Americans were not ready to accept a black president. Baloney. Now they may have to acknowledge a simpler truth — that Obama’s ideas are repugnant to most voters. Also likely to go down in flames is the untested notion that Tea Partiers are a bunch of right-wing racists.
‘Abolish the Fed’
If change is indeed in the air, one of the most intriguing possibilities we’ve heard so far is a plan from Gary North to do away with Federal Reserve. Although we’ve had our differences with Gary in the past on the issue of inflation vs. deflation, we have no problem deferring to him where the Fed is concerned. He is an expert’s expert on the subject, and in arguing to abolish the central bank, his heart is in the right place. Here is a link to his essay, which is too detailed and subtly nuanced for us to do it justice here. Suffice it to say, North has come up with a brilliant incentive that could mobilize voters on the issue. His plan would require the Treasury to sell all of the gold held by the U.S. Government to its true owners, the American people, at a price of $42.22 an ounce. Dare we suggest that, as the issue gathers steam and plays out in the press, voters might actually come to understand why it is in their best interest to dissolve the Federal Reserve System? Actually, even now, more than a few tea Partiers undoubtedly realize that the Fed exists, as North puts it, to defend the interests of a cartel of large banks. Exactly how the central bank does this is obscured by myriad layers of deliberate obfuscation, including Fed-speak by Bernanke and his predecessors, but also and most crucially by a news media too stupid and lazy to investigate and present the facts. Let the newsrooms beware: the lynch mob is just as angry with those who report the news as it is with those who make it. If the news media continue to play dumb even as more and more voters come to understand and believe that the Fed does indeed steal from the poor to support the rich, revolution’s first fusillade in November is going to turn into cannon and mortar fire in the months and years ahead.
I am a political athiest, so don't misconstrue that I am passing this article on as a political statement. It is not. But the commentary on The Fed toward the end of the article bears watching closely by everyone that is concerned about the safety of their investments.
Politics as Usual - or Is It Revolution?
by Rick Ackerman
Here in Colorado, it’s especially difficult to escape the vitriol and mudslinging of Campaign 2010. The closely watched Senatorial race between Democrat Michael Bennett and Republican Ken Buck has attracted a torrent of out-of-state money, and it sometimes seems as though all of it, a reported $750,000 a day, is being used to finance the attack ads that have come to dominate the local airwaves. Elsewhere in the country, it’s the same unpretty story — no doubt in part because Democratic candidates would rather not talk about, much less defend, President Obama’s heavy-handed initiatives. Thus, in the last few days alone do we find one Republican smeared with the charge of rape, and another, Rand Paul, accused of having tied up a woman 30 years ago and commanding her to worship a false idol. If you’ve been following the news, you know we didn’t make this up. Even the President got into the slimy, suppurating spirit of things recently, accusing the U.S. Chamber of Commerce of taking foreign money to back right-leaning candidates. But even the New York Times wasn’t buying it — nor, apparently, was anyone else — and it now appears the mainstream news media is simply going to let the issue die before their Anointed One makes even more of a fool of himself.
And yet, putting aside all of this toxic sludge, we find ourselves positively excited about the possibility there’s a revolution brewing and that actual political change could occur as a result of the election. Yes, we know, it doesn’t much matter whether the country elects Republicans or Democrats — the long-term results will always be roughly the same. But when we talk about revolution, it has less to do with changes in the political make-up of the House and Senate than with vastly larger changes taking shape in the hearts and minds of the electorate. For one, if conservative candidates romp, as seems likely, the mainstream news media (MSM) will have to face up to the reasons. Remember, it wasn’t long ago that they were soft-peddling Obama’s line that he simply had not communicated his ideas with sufficient clarity. And before that, they carried his water with the argument that many Americans were not ready to accept a black president. Baloney. Now they may have to acknowledge a simpler truth — that Obama’s ideas are repugnant to most voters. Also likely to go down in flames is the untested notion that Tea Partiers are a bunch of right-wing racists.
‘Abolish the Fed’
If change is indeed in the air, one of the most intriguing possibilities we’ve heard so far is a plan from Gary North to do away with Federal Reserve. Although we’ve had our differences with Gary in the past on the issue of inflation vs. deflation, we have no problem deferring to him where the Fed is concerned. He is an expert’s expert on the subject, and in arguing to abolish the central bank, his heart is in the right place. Here is a link to his essay, which is too detailed and subtly nuanced for us to do it justice here. Suffice it to say, North has come up with a brilliant incentive that could mobilize voters on the issue. His plan would require the Treasury to sell all of the gold held by the U.S. Government to its true owners, the American people, at a price of $42.22 an ounce. Dare we suggest that, as the issue gathers steam and plays out in the press, voters might actually come to understand why it is in their best interest to dissolve the Federal Reserve System? Actually, even now, more than a few tea Partiers undoubtedly realize that the Fed exists, as North puts it, to defend the interests of a cartel of large banks. Exactly how the central bank does this is obscured by myriad layers of deliberate obfuscation, including Fed-speak by Bernanke and his predecessors, but also and most crucially by a news media too stupid and lazy to investigate and present the facts. Let the newsrooms beware: the lynch mob is just as angry with those who report the news as it is with those who make it. If the news media continue to play dumb even as more and more voters come to understand and believe that the Fed does indeed steal from the poor to support the rich, revolution’s first fusillade in November is going to turn into cannon and mortar fire in the months and years ahead.
Anti-American
The Founders of this country would not recognize the present government as their creation. We need not idealize them in order to recognize that the regime we live under now has severed any real connection with the original Republic... with its principles, its political culture, its love of peace and good relations abroad free of “entangling alliances.” At home and abroad, this government has wildly outrun any possible rationale for its power. It is something every American should be both afraid of and ashamed of. A patriotic American today ought to be “anti-American.” - Joe Sobran
The Founders of this country would not recognize the present government as their creation. We need not idealize them in order to recognize that the regime we live under now has severed any real connection with the original Republic... with its principles, its political culture, its love of peace and good relations abroad free of “entangling alliances.” At home and abroad, this government has wildly outrun any possible rationale for its power. It is something every American should be both afraid of and ashamed of. A patriotic American today ought to be “anti-American.” - Joe Sobran
Refrain From Investing
“Since it is unfortunately not within our power, as ordinary citizens, to do away with fiat money,we have to live with it and manage our affairs accordingly; we must, in other words, take rational economic decisions in the context of an irrational monetary regime that distorts relative prices and renders them increasingly meaningless as guides of where to invest.
“Here, I think, is where the role of gold comes in: acquiring gold is not an investment. It is a conscious decision to REFRAIN from investing until an honest monetary regime makes rational calculation of relative asset prices possible. In this sense, gold plays a quintessentially monetary role: it permits you to postpone your investment decisions and to keep your options open for future investment. As awareness of this function of gold (and silver) increases, its price relative to other assets (including fiat currencies) rises. This is what we have witnessed over the last several years.”
And yes, of course, the price of gold could easily retrace some of its recent gains. But for gold and silver prices to collapse (or for these supposed bubbles to “burst”) would require a sudden and hugely unlikely rediscovery of mass fiscal and monetary credibility on the part of G7 governments who are currently slashing at the value of their own paper currencies like Freddie Krueger,perpetuating the already overly long Nightmare on Wall Street. Source
“Since it is unfortunately not within our power, as ordinary citizens, to do away with fiat money,we have to live with it and manage our affairs accordingly; we must, in other words, take rational economic decisions in the context of an irrational monetary regime that distorts relative prices and renders them increasingly meaningless as guides of where to invest.
“Here, I think, is where the role of gold comes in: acquiring gold is not an investment. It is a conscious decision to REFRAIN from investing until an honest monetary regime makes rational calculation of relative asset prices possible. In this sense, gold plays a quintessentially monetary role: it permits you to postpone your investment decisions and to keep your options open for future investment. As awareness of this function of gold (and silver) increases, its price relative to other assets (including fiat currencies) rises. This is what we have witnessed over the last several years.”
And yes, of course, the price of gold could easily retrace some of its recent gains. But for gold and silver prices to collapse (or for these supposed bubbles to “burst”) would require a sudden and hugely unlikely rediscovery of mass fiscal and monetary credibility on the part of G7 governments who are currently slashing at the value of their own paper currencies like Freddie Krueger,perpetuating the already overly long Nightmare on Wall Street. Source
The Funnies
"The liberals are asking us to give Obama time. We agree... and think 25 to life would be appropriate." - Jay Leno
"America needs Obama-care like Nancy Pelosi needs a Halloween mask." - Jay Leno
Q: "Have you heard about McDonald's new Obama Value Meal?
A: Order anything you like and the guy behind you has to pay for it." - Conan O'Brien
Q: "What does Barack Obama call lunch with a convicted felon?"
A: "A fund raiser." - Jay Leno
Q: "What's the difference between Obama's cabinet and a penitentiary?"
A: "One is filled with tax evaders, blackmailers, and threats to society. The other is for housing prisoners." - David Letterman
Q: "If Nancy Pelosi and Obama were on a boat in the middle of the ocean and it started to sink, who would be saved?"
A: "America!" - Jimmy Fallon
Q: "What's the difference between Obama and his dog, Bo?"
A: "Bo has papers." - Jimmy Kimmel
Q: "What was the most positive result of the 'Cash for Clunkers' program?"
A: "It took 95% of the Obama bumper stickers off the road." - David Letterman
"The liberals are asking us to give Obama time. We agree... and think 25 to life would be appropriate." - Jay Leno
"America needs Obama-care like Nancy Pelosi needs a Halloween mask." - Jay Leno
Q: "Have you heard about McDonald's new Obama Value Meal?
A: Order anything you like and the guy behind you has to pay for it." - Conan O'Brien
Q: "What does Barack Obama call lunch with a convicted felon?"
A: "A fund raiser." - Jay Leno
Q: "What's the difference between Obama's cabinet and a penitentiary?"
A: "One is filled with tax evaders, blackmailers, and threats to society. The other is for housing prisoners." - David Letterman
Q: "If Nancy Pelosi and Obama were on a boat in the middle of the ocean and it started to sink, who would be saved?"
A: "America!" - Jimmy Fallon
Q: "What's the difference between Obama and his dog, Bo?"
A: "Bo has papers." - Jimmy Kimmel
Q: "What was the most positive result of the 'Cash for Clunkers' program?"
A: "It took 95% of the Obama bumper stickers off the road." - David Letterman
Don't Be Surprised If Gold Drops
from Ed Steer, Casey Research
In commentary to his subscribers last night, silver analyst Ted Butler had this to say... and I'm paraphrasing a lot. "...over the past 7 weeks, gold has climbed by $140... and silver is up by $6.30. The commercials didn't increase their short positions materially on those rallies... nor did they reduce them. It is important to understand how the futures market operates. Every day, all long and short position holders have their holdings marked to market. If a position moves in one's favor, the mark to market amount is credited to each account. If a position is adversely impacted by the daily mark to market, each account is debited by the appropriate amount. Additional funds covering the adverse move are required to be immediately deposited to make up for the market to market paper loss. This is a margin call. If you don't cover margin calls immediately by depositing additional funds, the brokerage house will close out a sufficient portion of your position to cover the margin deficiency. If you hold long positions, they will sell you out. If you hold short positions, they will buy back your short position."
"As of the end of trading on Friday, the total collective margin call to the silver shorts was $3.78 billion... and to the gold shorts it was $7 billion. Since I believe that many of the gold shorts also hold silver shorts, it is reasonable to look at the silver and gold total margin calls on a combined basis of almost $11 billion. Because the big 8 commercial silver and gold shorts [read bullion banks - Ed] hold a concentrated short position of more than 50% of the true net total open interest, these 8 trading entities have been hit with $6 billion in margin calls. JPMorgan is out almost a billion dollars on silver alone."
Ted feels that these killer margin calls have already claimed many casualties... but it's too soon to know who they are, as "the bodies haven't floated to the surface yet."
Ted also says that this has created a dangerous situation for the market itself... as the '8 or less' traders are more desperate than ever to rig a sell-off. Can they, or will they? As I've said many times in this column, the resolution of these obscene and grotesque short positions will determine the future price of silver and gold... and timing is running out.
from Ed Steer, Casey Research
In commentary to his subscribers last night, silver analyst Ted Butler had this to say... and I'm paraphrasing a lot. "...over the past 7 weeks, gold has climbed by $140... and silver is up by $6.30. The commercials didn't increase their short positions materially on those rallies... nor did they reduce them. It is important to understand how the futures market operates. Every day, all long and short position holders have their holdings marked to market. If a position moves in one's favor, the mark to market amount is credited to each account. If a position is adversely impacted by the daily mark to market, each account is debited by the appropriate amount. Additional funds covering the adverse move are required to be immediately deposited to make up for the market to market paper loss. This is a margin call. If you don't cover margin calls immediately by depositing additional funds, the brokerage house will close out a sufficient portion of your position to cover the margin deficiency. If you hold long positions, they will sell you out. If you hold short positions, they will buy back your short position."
"As of the end of trading on Friday, the total collective margin call to the silver shorts was $3.78 billion... and to the gold shorts it was $7 billion. Since I believe that many of the gold shorts also hold silver shorts, it is reasonable to look at the silver and gold total margin calls on a combined basis of almost $11 billion. Because the big 8 commercial silver and gold shorts [read bullion banks - Ed] hold a concentrated short position of more than 50% of the true net total open interest, these 8 trading entities have been hit with $6 billion in margin calls. JPMorgan is out almost a billion dollars on silver alone."
Ted feels that these killer margin calls have already claimed many casualties... but it's too soon to know who they are, as "the bodies haven't floated to the surface yet."
Ted also says that this has created a dangerous situation for the market itself... as the '8 or less' traders are more desperate than ever to rig a sell-off. Can they, or will they? As I've said many times in this column, the resolution of these obscene and grotesque short positions will determine the future price of silver and gold... and timing is running out.
Morning Technical Analysis
Jon Nadler - Kitco Metals
The yellow metal appears poised to retrace some of its recent chart steps all the way to possibly the $1,327.00 level, according to analysts at Barclays Capital.
This, as bullion failed to hold the record $1,387.00 mark and then broke its previous channel high at $1,368.00 the ounce. Barclays team notes that so long as gold manages to remain above $1,300.00 and its 10-week trend line, the bullish tilt would remain in place. full article
Jon Nadler - Kitco Metals
The yellow metal appears poised to retrace some of its recent chart steps all the way to possibly the $1,327.00 level, according to analysts at Barclays Capital.
This, as bullion failed to hold the record $1,387.00 mark and then broke its previous channel high at $1,368.00 the ounce. Barclays team notes that so long as gold manages to remain above $1,300.00 and its 10-week trend line, the bullish tilt would remain in place. full article
The Importance of China
by Doug Casey, Casey Research
Typically, the G-20 Summit is about as interesting and exciting as watching grass grow. Perhaps that's why, hoping few were paying attention, two former communist adversaries selected a recent G-20 meeting in London to announce a plan that, unbeknownst to the rest of the world, had been secretly brewing for years.
It all started back in 2003. Deep behind the shadow of Chairman Mao's mural, communist insiders began worrying about the safety of their massive U.S. holdings, which at that time were around $403 billion (almost 25% of China's GDP).
With U.S. military spending topping $404 billion borrowed dollars, plus careless monetary policies coupled with a $3.9 trillion national debt, the Chinese forecasted that the United States was on its way to destroying the dollar.
So the Chinese did what any sane investor would do. They devised a plan to protect their assets starting with...
ONE THOUSAND TONNES OF GOLD.
The first part of their plan unfolded recently when China shocked the world by revealing that they control over 33.89 million ounces of gold for monetary purposes. That’s an increase of 75% in Chinese gold holdings over the past six years!
By making its purchases through its State Administration of Foreign Exchange (SAFE) instead of the People’s Bank of China (PBOC), China managed to accumulate more than 1,000 TONNES of gold... without anyone even raising an eyebrow.
And then came the shocking G-20 announcement: After months of behind-the-scenes maneuvering, the Chinese and Russians along with several of their crony nations, have proposed ...
Dumping the U.S. dollar as the world's reserve currency.
On the surface, the communists have politely positioned their proposal as simply a "practical" adjustment in currency. But it's much more than that. They're scared to death that the continued stupidity of the United States government could bankrupt them!
Consider these understated comments by Chinese Premier Wen Jiabao at a recent news conference: “We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.”
As the Wall Street Journal reported, China's call to replace the dollar as the world's standard, "reflects developing nations' growing unhappiness with the U.S. role in the world economy." It's really no wonder. We're in the midst of what could be a perfect storm of currency collapse and the likelihood of an inflationary spiral brought on by the mass printing of currency throughout the world.
The result is that we could soon see the dollar collapse down to 20% or 30% of its current value.
That means in terms of buying power, your life savings could be worth a fraction of its current value. Unless you take action now, everything you've saved and worked hard for could be virtually wiped out... and your plans for a comfortable retirement a distant memory.
"But aren't we in a recovery?"
The Chinese aren't buying it, and neither should you.
The recent run-up of the stock market may have some drinkers of the government's "Kool-Aid" convinced that everything is fine and the recovery is well under way. But the recent surge in stocks won't last. In fact, a close look at the facts reveals that recent proclamations of progress are just more white-washing of the truth. For example:
Some banks have reported 4Q profits, but ...
192* banks have collapsed since the crisis began, including 140 in 2009 and 37 so far in 2010. Last year was the first time since 1992 that more than 100 failed. Many predict total failures will exceed 1,000. *As of 3/17/10
GDP was positive in the 4th quarter, technically signaling we’re out of the recession. But the truth is...
Income tax receipts are falling. Businesses are reluctant to hire. Quarterly profits are more from cutbacks and layoffs than from increased sales.
$3.5 trillion is sitting in money market accounts supposedly ready to be spent and invested. But ...
Americans just aren't buying. Personal bankruptcies were 27.9% higher than last year and 8.9% higher than last month. 36 million Americans, almost 1 in 8, receive food stamps, a record high for the country.
Job losses were fewer in January than December. Big deal...
January was the 25th straight month of job losses, with employers shedding another 20,000 jobs. And as The Associated Press reports, " the Great Recession has eliminated 8.4 million jobs. That’s the most of any recession since World War II as a proportion of total payrolls.”
Home prices in some parts of the country appear to be stabilizing. In reality...
The Wall Street Journal reports that foreclosures are still rising at a rate of 1 every 13 seconds. The average new home has been on the market for 12.9 months. It would take at least two years to absorb current vacancies.
The truth is, the U.S. economy is a house of "bailout" cards. No matter how neatly disguised by the government's smoke and mirrors, it's a house destined to collapse.
When it finally does come tumbling down to reality, the Chinese are not about to let their massive U.S. holdings – now more than $1.6 TRILLION – be taken down with it. They want to back their investments with something more reliable.
And so should you.
by Doug Casey, Casey Research
Typically, the G-20 Summit is about as interesting and exciting as watching grass grow. Perhaps that's why, hoping few were paying attention, two former communist adversaries selected a recent G-20 meeting in London to announce a plan that, unbeknownst to the rest of the world, had been secretly brewing for years.
It all started back in 2003. Deep behind the shadow of Chairman Mao's mural, communist insiders began worrying about the safety of their massive U.S. holdings, which at that time were around $403 billion (almost 25% of China's GDP).
With U.S. military spending topping $404 billion borrowed dollars, plus careless monetary policies coupled with a $3.9 trillion national debt, the Chinese forecasted that the United States was on its way to destroying the dollar.
So the Chinese did what any sane investor would do. They devised a plan to protect their assets starting with...
ONE THOUSAND TONNES OF GOLD.
The first part of their plan unfolded recently when China shocked the world by revealing that they control over 33.89 million ounces of gold for monetary purposes. That’s an increase of 75% in Chinese gold holdings over the past six years!
By making its purchases through its State Administration of Foreign Exchange (SAFE) instead of the People’s Bank of China (PBOC), China managed to accumulate more than 1,000 TONNES of gold... without anyone even raising an eyebrow.
And then came the shocking G-20 announcement: After months of behind-the-scenes maneuvering, the Chinese and Russians along with several of their crony nations, have proposed ...
Dumping the U.S. dollar as the world's reserve currency.
On the surface, the communists have politely positioned their proposal as simply a "practical" adjustment in currency. But it's much more than that. They're scared to death that the continued stupidity of the United States government could bankrupt them!
Consider these understated comments by Chinese Premier Wen Jiabao at a recent news conference: “We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.”
As the Wall Street Journal reported, China's call to replace the dollar as the world's standard, "reflects developing nations' growing unhappiness with the U.S. role in the world economy." It's really no wonder. We're in the midst of what could be a perfect storm of currency collapse and the likelihood of an inflationary spiral brought on by the mass printing of currency throughout the world.
The result is that we could soon see the dollar collapse down to 20% or 30% of its current value.
That means in terms of buying power, your life savings could be worth a fraction of its current value. Unless you take action now, everything you've saved and worked hard for could be virtually wiped out... and your plans for a comfortable retirement a distant memory.
"But aren't we in a recovery?"
The Chinese aren't buying it, and neither should you.
The recent run-up of the stock market may have some drinkers of the government's "Kool-Aid" convinced that everything is fine and the recovery is well under way. But the recent surge in stocks won't last. In fact, a close look at the facts reveals that recent proclamations of progress are just more white-washing of the truth. For example:
Some banks have reported 4Q profits, but ...
192* banks have collapsed since the crisis began, including 140 in 2009 and 37 so far in 2010. Last year was the first time since 1992 that more than 100 failed. Many predict total failures will exceed 1,000. *As of 3/17/10
GDP was positive in the 4th quarter, technically signaling we’re out of the recession. But the truth is...
Income tax receipts are falling. Businesses are reluctant to hire. Quarterly profits are more from cutbacks and layoffs than from increased sales.
$3.5 trillion is sitting in money market accounts supposedly ready to be spent and invested. But ...
Americans just aren't buying. Personal bankruptcies were 27.9% higher than last year and 8.9% higher than last month. 36 million Americans, almost 1 in 8, receive food stamps, a record high for the country.
Job losses were fewer in January than December. Big deal...
January was the 25th straight month of job losses, with employers shedding another 20,000 jobs. And as The Associated Press reports, " the Great Recession has eliminated 8.4 million jobs. That’s the most of any recession since World War II as a proportion of total payrolls.”
Home prices in some parts of the country appear to be stabilizing. In reality...
The Wall Street Journal reports that foreclosures are still rising at a rate of 1 every 13 seconds. The average new home has been on the market for 12.9 months. It would take at least two years to absorb current vacancies.
The truth is, the U.S. economy is a house of "bailout" cards. No matter how neatly disguised by the government's smoke and mirrors, it's a house destined to collapse.
When it finally does come tumbling down to reality, the Chinese are not about to let their massive U.S. holdings – now more than $1.6 TRILLION – be taken down with it. They want to back their investments with something more reliable.
And so should you.
A Long Way To Go
by David Tanner
I always enjoy berating those I encounter who are guilty of "rear-view mirror" investing. An example of "rear-view" investing is when someone says "I don't want to buy gold now because it is too high." My response is always "too high compared to what? Too high compared to where the price was ten years ago (rear-view), or too high compared to where it will be ten years from now (full windshield view)?"
So having said that, I point out that this post will be based on a "rear-view" of the gold market, so just take it for what it's worth. The rear-view can be helpful, but it should never trump the "full windshield view." Having dispensed with this caveat, I offer the following observation.
The following chart from Casey Research shows how much of the global financial assets were invested in gold during the last gold bull market, and compares that percentage to today's figures.
As you can see, based on the "rear-view" it looks like we have a long way to go in this gold bull market. In fact, it appears that we are just getting started. Were we to simply equal the 1980 peak, gold should attain the price of $5,200 an ounce.
However, the future is always "similar" to the past, but never exactly the same. I think this is especially true in this current gold bull market. The forces driving gold higher today are exponentially greater than what we had in the late 70s.
The bull market of the late 70s was mostly caused by a dollar problem (This is a gross oversimplification of that time, I know!). Today however, we have a GLOBAL currency problem. ALL currencies are under attack!
Therefore, when we take a look at the rear-view mirror, and combine it with what we see out of the front windshield (which is a far more important indicator) we would have to come to the conclusion that $5,000 gold is most probably a gross underestimation of how far this bull market really has to go.
by David Tanner
I always enjoy berating those I encounter who are guilty of "rear-view mirror" investing. An example of "rear-view" investing is when someone says "I don't want to buy gold now because it is too high." My response is always "too high compared to what? Too high compared to where the price was ten years ago (rear-view), or too high compared to where it will be ten years from now (full windshield view)?"
So having said that, I point out that this post will be based on a "rear-view" of the gold market, so just take it for what it's worth. The rear-view can be helpful, but it should never trump the "full windshield view." Having dispensed with this caveat, I offer the following observation.
The following chart from Casey Research shows how much of the global financial assets were invested in gold during the last gold bull market, and compares that percentage to today's figures.
As you can see, based on the "rear-view" it looks like we have a long way to go in this gold bull market. In fact, it appears that we are just getting started. Were we to simply equal the 1980 peak, gold should attain the price of $5,200 an ounce.
However, the future is always "similar" to the past, but never exactly the same. I think this is especially true in this current gold bull market. The forces driving gold higher today are exponentially greater than what we had in the late 70s.
The bull market of the late 70s was mostly caused by a dollar problem (This is a gross oversimplification of that time, I know!). Today however, we have a GLOBAL currency problem. ALL currencies are under attack!
Therefore, when we take a look at the rear-view mirror, and combine it with what we see out of the front windshield (which is a far more important indicator) we would have to come to the conclusion that $5,000 gold is most probably a gross underestimation of how far this bull market really has to go.
Short Term Volitility Keeps Most From Long Term Profits
Many don't invest in gold because they say it is too volitile. They are scared to buy right now because they don't want to risk buying in at these "high" prices.
I'd be inclined to agree with them if my focus were on short term profits. But my focus is clearly 5 to 10 years down the road. And with that time frame in mind, gold is the ONLY safe alternative today.
Consider the following:
You would have to give your children or grandchildren $1 today to buy the same amount of candy you could get for 18¢ back in 1971.
While gold’s price has fluctuated, its purchasing power has endured.
In fact, unlike with the dollar, your children can actually buy about 4 times MORE candy today than you got with the same gold coin you had in 1971.
Paper ALWAYS loses value long term, and gold ALWAYS retains value long term. Don't let the short term volitility of the dollar gold price hide this truth from you!!!
Many don't invest in gold because they say it is too volitile. They are scared to buy right now because they don't want to risk buying in at these "high" prices.
I'd be inclined to agree with them if my focus were on short term profits. But my focus is clearly 5 to 10 years down the road. And with that time frame in mind, gold is the ONLY safe alternative today.
Consider the following:
You would have to give your children or grandchildren $1 today to buy the same amount of candy you could get for 18¢ back in 1971.
While gold’s price has fluctuated, its purchasing power has endured.
In fact, unlike with the dollar, your children can actually buy about 4 times MORE candy today than you got with the same gold coin you had in 1971.
Paper ALWAYS loses value long term, and gold ALWAYS retains value long term. Don't let the short term volitility of the dollar gold price hide this truth from you!!!
If Yen Is Unstoppable, So Is Dollar’s Collapse
by Rick Ackerman, Rick's Picks
Take a look at this graph if you think the central banks have things under control. The chart shows the yen’s relentless rise since summer, punctuated by a single, nasty plunge on September 15. That was the day the Bank of Japan intervened in the currency markets for the first time in six years, prompted by concerns that the yen’s steep rise would hurt Japan’s export-based economy, and by the fact that the yen had recently spiked to a 15-year high versus the dollar. The intervention obviously failed, since the yen quickly recouped the loss and is now trading significantly higher than before the intervention. Because we have heard little from the Japanese since, however, we can only infer that they know enough to shut up rather than pretend they can bully speculators. Repeat a threat often enough, and eventually you become a laughing stock.
If Japan has thrown everything but the kitchen sink at the yen with no success, one can only imagine what it’s going to be like when it’s the Fed’s turn to “manage” the U.S. dollar. So far, the dollar has managed itself, albeit with plenty of help from central banks around the world that are even more keen on beating down their respective currencies than the U.S. is the dollar. But this is just small potatoes, a warm-up before the fat lady sings. Japan’s efforts to push down the yen have been geared toward padding the profits of its domestic manufacturers, and the scope of these efforts has therefore been commensurate in size with actual trade in physical goods. But the sums involved pale in comparison to the nearly quadrillion-dollar shell game that the world’s financiers have created with dollar-denominated securities. Don’t even think about trying to push that market around when it discovers it’s got a mind of its own.
Of course, America’s won’t be trying to push the dollar down, but to keep it from collapsing. This hasn’t been a concern until now because the U.S. policy on the dollar has been to simply let it ease lower, much as it has been, and notwithstanding Geithner’s occasional, hollow assertions that the U.S. favors a” strong” dollar. There are signs, however, that the dollar’s more or less controlled drift lower could accelerate without warning and turn into a global rout. One is the relentless rise of gold and silver prices. Another is that China, with $2.3 trillion of reserves, has become an aggressive seller of U.S. Treasurys. Japan, as well as U.S. dealers glutted with easy money, have picked up some of the slack, but increasingly it is the Federal Reserve that has been buying the debt that foreigners no longer want. If you need further convincing that the dollar’s cachet has diminished around the world, consider that even the Russians, who for decades craved dollars on the black market, now shun the greenback, favoring rubles to play in one of the hottest asset markets in the world.
It should have been obvious all along that it would ultimately be the collapse of the dollar — the 50,000-pound gorilla of the global financial system — that would end the illusion that the central banks are all-powerful. One of these days this will become all-too-clear, for the bankers will be going up against a millennial tide of fiat money.
by Rick Ackerman, Rick's Picks
Take a look at this graph if you think the central banks have things under control. The chart shows the yen’s relentless rise since summer, punctuated by a single, nasty plunge on September 15. That was the day the Bank of Japan intervened in the currency markets for the first time in six years, prompted by concerns that the yen’s steep rise would hurt Japan’s export-based economy, and by the fact that the yen had recently spiked to a 15-year high versus the dollar. The intervention obviously failed, since the yen quickly recouped the loss and is now trading significantly higher than before the intervention. Because we have heard little from the Japanese since, however, we can only infer that they know enough to shut up rather than pretend they can bully speculators. Repeat a threat often enough, and eventually you become a laughing stock.
Of course, America’s won’t be trying to push the dollar down, but to keep it from collapsing. This hasn’t been a concern until now because the U.S. policy on the dollar has been to simply let it ease lower, much as it has been, and notwithstanding Geithner’s occasional, hollow assertions that the U.S. favors a” strong” dollar. There are signs, however, that the dollar’s more or less controlled drift lower could accelerate without warning and turn into a global rout. One is the relentless rise of gold and silver prices. Another is that China, with $2.3 trillion of reserves, has become an aggressive seller of U.S. Treasurys. Japan, as well as U.S. dealers glutted with easy money, have picked up some of the slack, but increasingly it is the Federal Reserve that has been buying the debt that foreigners no longer want. If you need further convincing that the dollar’s cachet has diminished around the world, consider that even the Russians, who for decades craved dollars on the black market, now shun the greenback, favoring rubles to play in one of the hottest asset markets in the world.
It should have been obvious all along that it would ultimately be the collapse of the dollar — the 50,000-pound gorilla of the global financial system — that would end the illusion that the central banks are all-powerful. One of these days this will become all-too-clear, for the bankers will be going up against a millennial tide of fiat money.
Short Term Gold Outlook
by David Tanner
I really hate to post short-term technical predictions, but I do make and exception when it comes to Rick Ackerman. I only PAY to follow two technical gold analysts, and Rick is one of them. Here is what Rick had to say this morning to his paid subscribers.
GCZ10 – December Gold (Last:1345.30)
by Rick Ackerman on October 11, 2010 12:01 am GMT
Gold’s snap-back rally was not quite a cavalry charge, but it should have discouraged the bad guys from thinking they can spook investors as easily as they did in the good old days, a few months ago. The bears have steady buying to contend with now from Russia, Brazil, India and China — and from a thousand other places where Bernanke’s pronouncements are not taken at, to put it charitably, face value. From a technical standpoint, the picture is not very complex. Using the Monthly chart (see inset), we find two serviceable targets at, respectively, 1400.80 and 1569.10. Buyers handled the midpoint resistance points associated with these targets with such ease as to affirm the likelihood the targets will indeed be reached. Our minimum upside target for the near term remains 1381.70.
To subscribe to Rick's Daily advisories click on the icon below. It is money well spent!
by David Tanner
I really hate to post short-term technical predictions, but I do make and exception when it comes to Rick Ackerman. I only PAY to follow two technical gold analysts, and Rick is one of them. Here is what Rick had to say this morning to his paid subscribers.
GCZ10 – December Gold (Last:1345.30)
by Rick Ackerman on October 11, 2010 12:01 am GMT
Gold’s snap-back rally was not quite a cavalry charge, but it should have discouraged the bad guys from thinking they can spook investors as easily as they did in the good old days, a few months ago. The bears have steady buying to contend with now from Russia, Brazil, India and China — and from a thousand other places where Bernanke’s pronouncements are not taken at, to put it charitably, face value. From a technical standpoint, the picture is not very complex. Using the Monthly chart (see inset), we find two serviceable targets at, respectively, 1400.80 and 1569.10. Buyers handled the midpoint resistance points associated with these targets with such ease as to affirm the likelihood the targets will indeed be reached. Our minimum upside target for the near term remains 1381.70.
To subscribe to Rick's Daily advisories click on the icon below. It is money well spent!
100 Years From Now
Baron's recently ran an article that pointed out the following fact:
IF YOU WERE TO TRAVEL 100 years into the future, never to return to 2010, what would you pack for the trip: $1 million in cash or $1 million in gold?
If you're like most of Northern Trust's clients, you'd pick the gold, says Bob Browne, chief investment officer for the Chicago-based high-end bank. "I would guess 99% of clients say 'I'll take the gold,'" he says, adding that gold has proved its value over and over again in the past century—in the faces of political upheaval, world wars and the debasement of currencies.
In other words, people were more confident that gold would be around 100 years from now than the dollar.
But that then makes me ask, "what about 90 years from now?"
"How about 80?" "Fifty?" "Twenty years?" "Five years?"
See the risk of not owning gold right now?
By saying you would choose it over the dollar a hundred years from now, but not now, simply means you are playing a waiting game. The game is not "if" you will buy gold, but "when."
Is that a risk you really want to take? Are your really that smart? What is the catalyst that will finally make you trade your paper for gold, and what if it does the same for everyone else? Will you even be able to get gold then when everybody wants it?
Really want to take that risk?
You see.... gold is not risky. No, gold is the ultimate risk-free asset, bar none!
If you are still waiting to purchase your gold, I will ask you the famous question that Dirty Harry asked: "Do ya feel lucky? Well.... do ya?"
Baron's recently ran an article that pointed out the following fact:
IF YOU WERE TO TRAVEL 100 years into the future, never to return to 2010, what would you pack for the trip: $1 million in cash or $1 million in gold?
If you're like most of Northern Trust's clients, you'd pick the gold, says Bob Browne, chief investment officer for the Chicago-based high-end bank. "I would guess 99% of clients say 'I'll take the gold,'" he says, adding that gold has proved its value over and over again in the past century—in the faces of political upheaval, world wars and the debasement of currencies.
In other words, people were more confident that gold would be around 100 years from now than the dollar.
But that then makes me ask, "what about 90 years from now?"
"How about 80?" "Fifty?" "Twenty years?" "Five years?"
See the risk of not owning gold right now?
By saying you would choose it over the dollar a hundred years from now, but not now, simply means you are playing a waiting game. The game is not "if" you will buy gold, but "when."
Is that a risk you really want to take? Are your really that smart? What is the catalyst that will finally make you trade your paper for gold, and what if it does the same for everyone else? Will you even be able to get gold then when everybody wants it?
Really want to take that risk?
You see.... gold is not risky. No, gold is the ultimate risk-free asset, bar none!
If you are still waiting to purchase your gold, I will ask you the famous question that Dirty Harry asked: "Do ya feel lucky? Well.... do ya?"
How the economy of Yap was brought to its knees
Monetarily speaking, everything progressed smoothly on the island of yap where large stones weighing hundreds of pounds were transported around to serve as money. That is until something unforeseen happened to the value of the money. For centuries, the stones served as exchange because there wasn't much of this type of rock on yap itself. The depreciation of the stone money began when an enterprising Western businessman realized he could produce stone money cheaply and in copious quantities on a neighboring island and transport it to yap, whence it could be used to procure goods in demand elsewhere. In other words, this oceanic cousin of John Law printed yap stone money to buy his wares at what might be called a "favorable" discount. By this process, the yap stone money was debased until it became worthless. Little did the citizens of yap know that they were being deprived of their wealth -- their money and economy destroyed by the process of monetary inflation. Had they owned gold as a hedge, the effects of the stone money inflation could have been neatly hedged (and avoided). SOURCE
Monetarily speaking, everything progressed smoothly on the island of yap where large stones weighing hundreds of pounds were transported around to serve as money. That is until something unforeseen happened to the value of the money. For centuries, the stones served as exchange because there wasn't much of this type of rock on yap itself. The depreciation of the stone money began when an enterprising Western businessman realized he could produce stone money cheaply and in copious quantities on a neighboring island and transport it to yap, whence it could be used to procure goods in demand elsewhere. In other words, this oceanic cousin of John Law printed yap stone money to buy his wares at what might be called a "favorable" discount. By this process, the yap stone money was debased until it became worthless. Little did the citizens of yap know that they were being deprived of their wealth -- their money and economy destroyed by the process of monetary inflation. Had they owned gold as a hedge, the effects of the stone money inflation could have been neatly hedged (and avoided). SOURCE
The Coming Collapse Will Bring Great Opportunity For Those Who Are Prepared
......But let me leave you with a final bit of good news. Most of the real wealth – science, technologies, capital and consumer goods – will still be here. There’s just going to be a change in ownership. And it’s possible to position yourself to get more than your share.
Based on the above, what looks good to me – on a long-term basis – over the years to come? In general, stocks, bonds, and property are dead ducks, and headed much lower. But when a real bottom arrives, perhaps even in this decade, fortunes will be made buying back into them. Gold and silver, even though they’re no longer cheap, are going much higher; they’ll be what you’ll trade for things that are cheap. Agricultural commodities are going to do well. The trillions of currency units being printed all over the world will definitely ignite more bubbles, which should present fantastic speculative opportunities. And because the political situation will be hairy, diversify your assets outside of your home country.
Read full article here.
What you just read is the content of Doug Casey’s speech at the just-concluded Casey’s Gold & Resource Summit. Doug and dozens of other experts on gold and resource investments gathered to share in-depth analysis, economic forecasts, and their top stock picks with a captive audience.
......But let me leave you with a final bit of good news. Most of the real wealth – science, technologies, capital and consumer goods – will still be here. There’s just going to be a change in ownership. And it’s possible to position yourself to get more than your share.
Based on the above, what looks good to me – on a long-term basis – over the years to come? In general, stocks, bonds, and property are dead ducks, and headed much lower. But when a real bottom arrives, perhaps even in this decade, fortunes will be made buying back into them. Gold and silver, even though they’re no longer cheap, are going much higher; they’ll be what you’ll trade for things that are cheap. Agricultural commodities are going to do well. The trillions of currency units being printed all over the world will definitely ignite more bubbles, which should present fantastic speculative opportunities. And because the political situation will be hairy, diversify your assets outside of your home country.
Read full article here.
What you just read is the content of Doug Casey’s speech at the just-concluded Casey’s Gold & Resource Summit. Doug and dozens of other experts on gold and resource investments gathered to share in-depth analysis, economic forecasts, and their top stock picks with a captive audience.
J.P Morgan: Gold to trade above $1,400/oz in 2011
Oct 8th, 2010 11:38 by News By Sue Chang
October 08, 2010 (MarketWatch) — J.P. Morgan Chase & Co. revised its outlook for metal prices in 2011 and now sees gold trading “consistently” above $1,400 per ounce next year compared with an average of $1,250 previously forecast.
… The upward revision in prices is due to expectations that “the probable escalation of quantitative easing and potential ‘currency wars’ will lead to a marked devaluation of paper assets,” metal strategist Michael Jansen wrote in a report issued overnight.
Oct 8th, 2010 11:38 by News By Sue Chang
October 08, 2010 (MarketWatch) — J.P. Morgan Chase & Co. revised its outlook for metal prices in 2011 and now sees gold trading “consistently” above $1,400 per ounce next year compared with an average of $1,250 previously forecast.
… The upward revision in prices is due to expectations that “the probable escalation of quantitative easing and potential ‘currency wars’ will lead to a marked devaluation of paper assets,” metal strategist Michael Jansen wrote in a report issued overnight.
Rise in equities got ya bullish? Be cautious. Amidst the October push to 11,000, the Dow Jones Industrial Average has continued its calamitous descent against gold which began in 2001 and shows no signs of abating. The silent market crash is real, and the fall of this paper tiger is surreptitiously ferocious.
As I wrote earlier this year, gold is not an investment. Gold is money - real money (See: Aristotle). Today, the rise in the Dow is being shown for what it really is - a crash - by that golden bedrock of monetary stability.
In the past 10 years, gold has fallen in nominal value sharply at times. In 2008, it plummeted over 20% in six months. It may happen again. But the real statistic worth measuring is purchasing power.
Gold's real value is determined not in the price of a fiat currency, but as a ratio to other assets. The Dow/Gold ratio simply determines how many ounces of gold it takes to purchase one Dow Jones Industrial Index. Whether the economy suffers through deflation or hyperinflation, it's the purchasing power that matters.
As I wrote earlier this year, gold is not an investment. Gold is money - real money (See: Aristotle). Today, the rise in the Dow is being shown for what it really is - a crash - by that golden bedrock of monetary stability.
In the past 10 years, gold has fallen in nominal value sharply at times. In 2008, it plummeted over 20% in six months. It may happen again. But the real statistic worth measuring is purchasing power.
Gold's real value is determined not in the price of a fiat currency, but as a ratio to other assets. The Dow/Gold ratio simply determines how many ounces of gold it takes to purchase one Dow Jones Industrial Index. Whether the economy suffers through deflation or hyperinflation, it's the purchasing power that matters.
Dow/Gold Ratio
I follow the Dow/Gold ratio closely as a measure of equity strength. It is worth noting that, in the two most difficult economic periods in the past one hundred years, the Dow/Gold Ratio approached 1. As of today it sits at 8.16.
July 1932 - Deflationary Depression
Dow 41.22, Gold $20.67
Ratio: 1.99
January 1980 - Inflation
Dow 872, Gold $850
Ratio: 1.03
Will the gold price catch the Dow to the upside as a result of hyperinflation, or will the Dow plummet towards the gold price in a deflationary vacuum? There are well-qualified arguments for each scenario. Regardless of direction, what we do know is that the ratio is narrowing - and fast!
The "Joe Six-Pack" Market Timing Method
by Rick Ackerman on October 6, 2010
The other day, we asked what kind of benighted Wall Street lackey would be so bearish on gold and silver these days as to advise their immediate sale. With nearly every central bank in the world on a monetary wilding spree, how, one might ask, could bullion prices possibly fall? And, yes, they will someday — in a big way. But that day probably lies well down the road, since there is almost no chance that a world hopelessly addicted to central-bank “free” money is about to go cold turkey. Europe’s move toward austerity is arguably the only fiscal threat to bullion’s powerful bull market right now, but at the end of the day it is no more a counterforce to global money-mania than a sand castle is to the pounding surf of a hurricane.
In any event, long before the supposed bubble in gold and silver bursts, the dollar would have to collapse, taking the global economy with it into a deflationary Marianas Trench. Until that day arrives, however, one would have to be crazy to think that the bull market in precious metals is anywhere near an end. For now, we’ll stick with a litmus test we proposed here earlier to determine when the bull market is ending. Specifically, we wrote that Joe Sixpack would be telling his poker buddies about mineralization levels in Ghana before bullion peaks. So far, though, as is plain to see, Joe Sixpack has not even discovered mining stocks, let alone Ghana core samples.
by Rick Ackerman on October 6, 2010
The other day, we asked what kind of benighted Wall Street lackey would be so bearish on gold and silver these days as to advise their immediate sale. With nearly every central bank in the world on a monetary wilding spree, how, one might ask, could bullion prices possibly fall? And, yes, they will someday — in a big way. But that day probably lies well down the road, since there is almost no chance that a world hopelessly addicted to central-bank “free” money is about to go cold turkey. Europe’s move toward austerity is arguably the only fiscal threat to bullion’s powerful bull market right now, but at the end of the day it is no more a counterforce to global money-mania than a sand castle is to the pounding surf of a hurricane.
In any event, long before the supposed bubble in gold and silver bursts, the dollar would have to collapse, taking the global economy with it into a deflationary Marianas Trench. Until that day arrives, however, one would have to be crazy to think that the bull market in precious metals is anywhere near an end. For now, we’ll stick with a litmus test we proposed here earlier to determine when the bull market is ending. Specifically, we wrote that Joe Sixpack would be telling his poker buddies about mineralization levels in Ghana before bullion peaks. So far, though, as is plain to see, Joe Sixpack has not even discovered mining stocks, let alone Ghana core samples.
Currency Wars
This is back to the beggar my neighbour policies of the 1930s. It is a kind of pass the parcel. Devaluation is a way to boost exports and get out of a slump. But not if your trading partner then applies the same medicine.
And of course the risk is always that devaluation does not stop at the desired level but morphs into hyperinflation of commodities and sets off a nasty downward spiral. Looking at the price of agricultural commodities today and even energy and you might conclude that we are already almost there.
Holding cash in such an environment is going to quickly turn toxic. The basic problem with cash is that it is created by governments and the banking system, and as they print more and more of it money becomes worth less and less.
The simple answer then is to change your money into a currency that cannot be devalued by the central banks. For centuries gold and silver have fulfilled that role, and prudent central banks have always held large amounts of both just in case they one day needed to again use precious metals as money.
Bond crisis
If the present tussling in currency markets gives way to a more serious rolling bond crisis – and this is surely what we have seen starting in Greece, Ireland, Portugal and Spain – then there will be a sudden rush to invest in hard assets like gold and silver. That will send the price of both metals spiralling upwards as the supply of both is relatively fixed, and precious metals cannot be created as alchemists have found out.
Arabian sheikhs are apparently big buyers in the gold market these days. The Saudi Central Bank was recently revealed to have twice the gold reserves previously stated. Gold sales by global central banks have almost dried up.
Preparing for a storm that you can see coming on the horizon makes good sense. Over the next few months it is perfectly possible that the US treasury bond market will implode. That will dynamite global financial markets and send gold and silver to very much higher levels.
The only caveat is that a sudden fall in global stock markets this month might well give the bond market one last hurrah, and hold back precious metal prices for a short time. But this should be seen for the cruel deception that it will prove to be, and used as a buying opportunity.
Peter J. Cooper
Editor, Arabian Money
This is back to the beggar my neighbour policies of the 1930s. It is a kind of pass the parcel. Devaluation is a way to boost exports and get out of a slump. But not if your trading partner then applies the same medicine.
And of course the risk is always that devaluation does not stop at the desired level but morphs into hyperinflation of commodities and sets off a nasty downward spiral. Looking at the price of agricultural commodities today and even energy and you might conclude that we are already almost there.
Holding cash in such an environment is going to quickly turn toxic. The basic problem with cash is that it is created by governments and the banking system, and as they print more and more of it money becomes worth less and less.
The simple answer then is to change your money into a currency that cannot be devalued by the central banks. For centuries gold and silver have fulfilled that role, and prudent central banks have always held large amounts of both just in case they one day needed to again use precious metals as money.
Bond crisis
If the present tussling in currency markets gives way to a more serious rolling bond crisis – and this is surely what we have seen starting in Greece, Ireland, Portugal and Spain – then there will be a sudden rush to invest in hard assets like gold and silver. That will send the price of both metals spiralling upwards as the supply of both is relatively fixed, and precious metals cannot be created as alchemists have found out.
Arabian sheikhs are apparently big buyers in the gold market these days. The Saudi Central Bank was recently revealed to have twice the gold reserves previously stated. Gold sales by global central banks have almost dried up.
Preparing for a storm that you can see coming on the horizon makes good sense. Over the next few months it is perfectly possible that the US treasury bond market will implode. That will dynamite global financial markets and send gold and silver to very much higher levels.
The only caveat is that a sudden fall in global stock markets this month might well give the bond market one last hurrah, and hold back precious metal prices for a short time. But this should be seen for the cruel deception that it will prove to be, and used as a buying opportunity.
Peter J. Cooper
Editor, Arabian Money
Strong, Steady Accumulation In Gold
From time to time we put a chart on the blog to give KWN readers globally a look at the big picture in the gold market. Besides helping professionals and private investors look at the big picture, this also helps to eliminate the noise that is so prevalent in the mainstream media regarding gold. This outstanding chart was sent to us by a listener out of Singapore, and is a classic look at stage II action inside of a secular bull market.
The beginning of the chart dates back to December of 2008 and shows the action through Friday’s close in gold. Notice the steady advance and distinct channel patterns (marked by the trend lines) located inside of a larger accumulation pattern on the chart.
As you can see from the chart, while it is possible to have a pullback, more importantly there is room for this rally to extend on the upside which is what James Turk, Ben Davies and I have been communicating to King World News readers and listeners globally for quite some time now.
We have had many top callers for quite a while in the gold sector, but the bull market has left both them and those who listened to their counsel in the dust. This is what bull markets do, as Richard Russell says, ‘they shake people out of them.’ In the end, sadly, bull markets take as few investors with them as possible.
Don’t be one of those left behind, be patient and hold on for the mania. For those accumulating physical gold and silver each month, keep making purchases and don’t try to time these types of markets.
For the professionals, be wary of top callers and remember, it is much easier to trade a bull market on the long side buying dips and selling rallies. As I have said on the air for many years, “If you make a bad entry point on the long side, the bull market will eventually rescue you.”
From time to time we put a chart on the blog to give KWN readers globally a look at the big picture in the gold market. Besides helping professionals and private investors look at the big picture, this also helps to eliminate the noise that is so prevalent in the mainstream media regarding gold. This outstanding chart was sent to us by a listener out of Singapore, and is a classic look at stage II action inside of a secular bull market.
Click on chart to enlarge
The beginning of the chart dates back to December of 2008 and shows the action through Friday’s close in gold. Notice the steady advance and distinct channel patterns (marked by the trend lines) located inside of a larger accumulation pattern on the chart.
As you can see from the chart, while it is possible to have a pullback, more importantly there is room for this rally to extend on the upside which is what James Turk, Ben Davies and I have been communicating to King World News readers and listeners globally for quite some time now.
We have had many top callers for quite a while in the gold sector, but the bull market has left both them and those who listened to their counsel in the dust. This is what bull markets do, as Richard Russell says, ‘they shake people out of them.’ In the end, sadly, bull markets take as few investors with them as possible.
Don’t be one of those left behind, be patient and hold on for the mania. For those accumulating physical gold and silver each month, keep making purchases and don’t try to time these types of markets.
For the professionals, be wary of top callers and remember, it is much easier to trade a bull market on the long side buying dips and selling rallies. As I have said on the air for many years, “If you make a bad entry point on the long side, the bull market will eventually rescue you.”
Gold Still Undercover!
by David Tanner
Today I bought a USA Today paper for the first time in about five years and was elated to see that there was still no mention of gold after the last few days' historic run-up. Just let's me know that we still have a LONG LONG way to go.
I will be buying from now till about $10,000/ounce and then I might buy another copy just to see whether anybody else has figured out what is going on.
Until then, keep smiling and buying!
DT
by David Tanner
Today I bought a USA Today paper for the first time in about five years and was elated to see that there was still no mention of gold after the last few days' historic run-up. Just let's me know that we still have a LONG LONG way to go.
I will be buying from now till about $10,000/ounce and then I might buy another copy just to see whether anybody else has figured out what is going on.
Until then, keep smiling and buying!
DT
Orderly Ascent in Gold To Become Disorderly
With gold hitting new highs, King World News spoke with Ben Davies, CEO of Hinde Capital, out of London to get his take on the move in gold and silver. Ben stated, “Even at new nominal highs there is a desire for gold, but the long-term holders are not sellers at these prices. They will have to be enticed into letting some go by much higher prices, as well as more attractive valuations in other asset classes.”
"So far this has been a very orderly market, despite the plethora of yahoos greeting new highs. But who really owns gold? The market is so orderly here, it feels like it’s being managed, and at some point the orderly rate of ascent will become disorderly to the upside as we enter into new price discovery.”
“We are still seeing negative real returns on bond investments. Investors have to ask themselves at some point, ‘Should we move from bonds into gold?’ Gold has no liabilities, or default risk, whereas government bonds these days are accompanied in some cases by tremendous risks.”
Regarding silver specifically Ben commented, “With silver at the $22 level, supply is extremely tight and at a 60 ratio to gold it remains highly undervalued.”
It seems we are in for some disorderly activity to the upside in the not too distant future, so hang on and enjoy the ride.
Eric King
KingWorldNews.com
With gold hitting new highs, King World News spoke with Ben Davies, CEO of Hinde Capital, out of London to get his take on the move in gold and silver. Ben stated, “Even at new nominal highs there is a desire for gold, but the long-term holders are not sellers at these prices. They will have to be enticed into letting some go by much higher prices, as well as more attractive valuations in other asset classes.”
"So far this has been a very orderly market, despite the plethora of yahoos greeting new highs. But who really owns gold? The market is so orderly here, it feels like it’s being managed, and at some point the orderly rate of ascent will become disorderly to the upside as we enter into new price discovery.”
“We are still seeing negative real returns on bond investments. Investors have to ask themselves at some point, ‘Should we move from bonds into gold?’ Gold has no liabilities, or default risk, whereas government bonds these days are accompanied in some cases by tremendous risks.”
Regarding silver specifically Ben commented, “With silver at the $22 level, supply is extremely tight and at a 60 ratio to gold it remains highly undervalued.”
It seems we are in for some disorderly activity to the upside in the not too distant future, so hang on and enjoy the ride.
Eric King
KingWorldNews.com
Gold at $40,000 An Ounce?
Jim Rikards recently suggested in an interview with King World News that if China were to simply continue to unload dollars and replace them with gold until their gold reserves-to-GDP ratio were in parity with that of the US, they would need to unload about $2 trillion in paper liabilities. Such a move would require that the price of gold would need to rise to around $40,000/ounce.
Listen here for the full interview.
____________________________________________
Jim Rickards: Senior Managing Director for Market Intelligence at Omnis, Inc. - Jim has been a direct participant in many of the most significant financial events over the past 30 years including the 1981 release of hostages from Iran and was also the principal negotiator for the government sponsored bailout of LTCM. His clients include private investment funds, investment banks and government directorates in national security and defense. He is an advisor to the Committee on Foreign Investment in the United States and Support Group of the Director of National Intelligence and recently testified before Congress on the causes of the financial crisis. Follow Jim Rickards on Twitter at twitter.com/JamesGRickards
Jim Rikards recently suggested in an interview with King World News that if China were to simply continue to unload dollars and replace them with gold until their gold reserves-to-GDP ratio were in parity with that of the US, they would need to unload about $2 trillion in paper liabilities. Such a move would require that the price of gold would need to rise to around $40,000/ounce.
Listen here for the full interview.
____________________________________________
Jim Rickards: Senior Managing Director for Market Intelligence at Omnis, Inc. - Jim has been a direct participant in many of the most significant financial events over the past 30 years including the 1981 release of hostages from Iran and was also the principal negotiator for the government sponsored bailout of LTCM. His clients include private investment funds, investment banks and government directorates in national security and defense. He is an advisor to the Committee on Foreign Investment in the United States and Support Group of the Director of National Intelligence and recently testified before Congress on the causes of the financial crisis. Follow Jim Rickards on Twitter at twitter.com/JamesGRickards
Richard Russell - Rising Gold Signals Death Knoll For US Dollar
In Richard Russell’s latest commentary, the Godfather of newsletter writers stated, “At the very foundation of the US economy is the fiat dollar. If the dollar goes, the economy goes with it. Rising gold signals the death knell for the dollar.” Russell sums up the US situation with frightening clarity...
October 4, 2010
Richard Russell:
In 1971 (Vietnam and deficits) when foreign nations (particularly France), demanded that the US settle its deficits with gold (as specified in the Bretton Woods Agreements), Richard Nixon and staff were worried about our disappearing gold reserves. Their answer to settling our debts in gold was a resounding and historic "no." In doing so, they shut the gold window. Thus, the time-honored link between the US dollar and gold was broken. The US would no longer give up its gold to settle its international debts. At that point, the US and the world went completely off the gold standard. The US dollar would then be the world's reserve currency.
Without the discipline of gold, the Bretton Woods agreement fell apart, and central banks were free to create fiat currency out of "thin air," as much of it as they wanted. The ignorant public accepted the intrinsically-worthless fiat money. "Now we're all Keynesians, " said a shaken Nixon.
The phony prosperity since 1971 was built on a Fed-created fantasy currency. Fantasies can only last so long -- until they meet head on with the brick wall of reality.
Thus, I believe that the very fundamentals of this bear market will be an epic clash between a world built on fiat money and a return to the reality of intrinsic wealth.
This bear market will be about the collapse of fiat money. In all history, no fiat currency has ever survived. The fundamental of this bear market will be about the collapse of the world's fiat currency and all the fake prosperity that has been created through fiat currency. In other words, cold reality will prevail. The people of the world will, at last, realize that money by fiat is not reality, it's fantasy money and a dream created by man.
In essence, what we're seeing now is a battle to the death between intrinsic money (gold) and the fiat paper created by the world's central banks.
The magnificent slow motion collapse of the fiat system which you are now witnessing will consume some individuals around you who are not prepared. This time it is global, and when the dust settles you must own real money - gold.
To subscribe to Richard Russell’s Dow Theory Letters CLICK HERE.
Eric King
KingWorldNews.com
In Richard Russell’s latest commentary, the Godfather of newsletter writers stated, “At the very foundation of the US economy is the fiat dollar. If the dollar goes, the economy goes with it. Rising gold signals the death knell for the dollar.” Russell sums up the US situation with frightening clarity...
October 4, 2010
Richard Russell:
In 1971 (Vietnam and deficits) when foreign nations (particularly France), demanded that the US settle its deficits with gold (as specified in the Bretton Woods Agreements), Richard Nixon and staff were worried about our disappearing gold reserves. Their answer to settling our debts in gold was a resounding and historic "no." In doing so, they shut the gold window. Thus, the time-honored link between the US dollar and gold was broken. The US would no longer give up its gold to settle its international debts. At that point, the US and the world went completely off the gold standard. The US dollar would then be the world's reserve currency.
Without the discipline of gold, the Bretton Woods agreement fell apart, and central banks were free to create fiat currency out of "thin air," as much of it as they wanted. The ignorant public accepted the intrinsically-worthless fiat money. "Now we're all Keynesians, " said a shaken Nixon.
The phony prosperity since 1971 was built on a Fed-created fantasy currency. Fantasies can only last so long -- until they meet head on with the brick wall of reality.
Thus, I believe that the very fundamentals of this bear market will be an epic clash between a world built on fiat money and a return to the reality of intrinsic wealth.
This bear market will be about the collapse of fiat money. In all history, no fiat currency has ever survived. The fundamental of this bear market will be about the collapse of the world's fiat currency and all the fake prosperity that has been created through fiat currency. In other words, cold reality will prevail. The people of the world will, at last, realize that money by fiat is not reality, it's fantasy money and a dream created by man.
In essence, what we're seeing now is a battle to the death between intrinsic money (gold) and the fiat paper created by the world's central banks.
The magnificent slow motion collapse of the fiat system which you are now witnessing will consume some individuals around you who are not prepared. This time it is global, and when the dust settles you must own real money - gold.
To subscribe to Richard Russell’s Dow Theory Letters CLICK HERE.
Eric King
KingWorldNews.com
The Delaire Report
October 4, 2010
Last week the price of gold recorded yet another record high with the spot price spiking to $1321.80 an ounce. As the price of the yellow metal continues its upward trajectory, there are analysts out there still wondering why gold is trading at these levels and talking about an impending correction.
Recently Dennis Gartman of the Gartman Letter said “. . .we shall urge the greatest of caution upon everyone, everywhere regarding gold. It is not just over-extended to the upside; it is hyper-extended. It is not just overbought; it is hyper-overbought. We cannot strongly enough urge everyone to avoid buying gold here and we shall go so far as to suggest that those who are long begin the process of quietly heading for the exits and to reduce their positions to the most minimal ‘insurance’ positions possible. Everyone should have perhaps 5% of their liquid assets in gold, but at this point anything beyond that level is excessive.”
Yes, perhaps the price of gold may appear to be overbought, but the gold price is hardly making new highs on account of nothing. And, while there are many reasons why the price is going higher, the main driving force behind this rise in price is because the major currencies of the world are debasing and the rising price of gold reflects that fact. Another way to look at this situation is to look at the value of the major currencies and then one may conclude that gold is not really rising - it's that fiat currencies are falling. And, at the moment gold is now being treated as money, and as such it is being valued according to its relationship with other currencies. And, unless there is something drastic about to happen that will reverse the current trend in currencies, don’t expect too see the price of gold collapse.
This is not the same scenario as 1980 when the price of gold ran upwards to over $800 an ounce and then almost as quickly as it ran upwards, it came back down. This time around we have not seen any parabolic rises in the price of the yellow metal, and the price of gold is merely fulfilling its traditional role as a hedge against the declining values of the major currencies, in particular the US dollar and the Euro.
As the economies of the US and most European countries remain depressed, central banks are going to try various expansionary monetary policies to re-start their economies. However, no matter what they try central bankers and politicians can't repeal the laws of economics. And, the consequence of their actions is going to lead to printing more money that will cause these currencies to become worth even less, and make gold become worth more.
The Fed's actions may have temporarily averted a crash in the US financial markets, and the European Central Bank's interventions may have postponed a string of defaults by indebted governments, but these measures will merely push back the inevitable day of reckoning. Within the next 12 months, the U.S. Treasury will have to deal with refinancing $2 trillion in short term debt. And, that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion. Add to this is the cost of the wars in Iraq and Afghanistan. How in the world can the Treasury possibly borrow $3.5 trillion in only one year - an amount that equals nearly 30% of the US GDP?
Any guesses where the money to cover this will come from? Printing more money of course or more “quantitative easing,” as it is now more commonly referred to.
As the US dollar weakens, other currencies strengthen. This puts pressure on these countries as their exports become more expensive and as in the case of Japan, these countries will be forced to devalue their currencies in order to maintain a competitive edge. As a result we can expect to see these countries engage in a competitive race of currency devaluation to increase exports. While we will never see or hear any declaration of a global currency war, we have now entered a period when the entire global monetary system is under stress and the battle of currencies has already begun.
On September 15 former Federal Reserve Chairman Alan Greenspan made a speech to the Council on Foreign Relations. Some very interesting comments he made with respect to gold in response to a question were reported in an editorial in the New York Sun, "Greenspan's Warning on Gold". According to the article Greenspan did not mince his words and said, "Fiat money has no place to go but gold."
As I have mentioned many times in the past, the history of fiat money has been one of failure. It works well when economies are expanding, and have high levels of employment as well as strong GDP growth. But, when economic growth is contracting and central banks try to stimulate economies by pumping money into the system, the result of this action will lead to the debasement of the national currency and ultimately a period of hyperinflation. The most recent example of this was Zimbabwe.
Not only did Mugabe’s policies manage to debase the currency to the point where it became totally worthless, there was a shortage of the most basic essentials such as bread and clean water. Now, Zimbabwe does not even have a national currency and all domestic transactions are paid for in US dollars or South African Rands. While the collapse of the Zimbabwe dollar only impacted on that country, a collapse in the US dollar will have global ramifications.
While I do not see a total collapse in the US dollar or the euro, and of course I am not attempting to compare these major economic power houses with an insignificant country such as Zimbabwe, there are still lesson to be learnt. What happened in Zimbabwe has many consistencies with what happened in other countries where the national currencies collapsed. Unless the problems of massive sovereign debt, burgeoning government budget deficits, low GDP growth, high unemployment are resolved, the current scenario is unlikely to change. As more and more investors as well as central banks themselves know that the possible conclusion could be a sever drop in the value of their national currencies, they are going to diversify into other assets including gold.
October 4, 2010
Last week the price of gold recorded yet another record high with the spot price spiking to $1321.80 an ounce. As the price of the yellow metal continues its upward trajectory, there are analysts out there still wondering why gold is trading at these levels and talking about an impending correction.
Recently Dennis Gartman of the Gartman Letter said “. . .we shall urge the greatest of caution upon everyone, everywhere regarding gold. It is not just over-extended to the upside; it is hyper-extended. It is not just overbought; it is hyper-overbought. We cannot strongly enough urge everyone to avoid buying gold here and we shall go so far as to suggest that those who are long begin the process of quietly heading for the exits and to reduce their positions to the most minimal ‘insurance’ positions possible. Everyone should have perhaps 5% of their liquid assets in gold, but at this point anything beyond that level is excessive.”
Yes, perhaps the price of gold may appear to be overbought, but the gold price is hardly making new highs on account of nothing. And, while there are many reasons why the price is going higher, the main driving force behind this rise in price is because the major currencies of the world are debasing and the rising price of gold reflects that fact. Another way to look at this situation is to look at the value of the major currencies and then one may conclude that gold is not really rising - it's that fiat currencies are falling. And, at the moment gold is now being treated as money, and as such it is being valued according to its relationship with other currencies. And, unless there is something drastic about to happen that will reverse the current trend in currencies, don’t expect too see the price of gold collapse.
This is not the same scenario as 1980 when the price of gold ran upwards to over $800 an ounce and then almost as quickly as it ran upwards, it came back down. This time around we have not seen any parabolic rises in the price of the yellow metal, and the price of gold is merely fulfilling its traditional role as a hedge against the declining values of the major currencies, in particular the US dollar and the Euro.
As the economies of the US and most European countries remain depressed, central banks are going to try various expansionary monetary policies to re-start their economies. However, no matter what they try central bankers and politicians can't repeal the laws of economics. And, the consequence of their actions is going to lead to printing more money that will cause these currencies to become worth even less, and make gold become worth more.
The Fed's actions may have temporarily averted a crash in the US financial markets, and the European Central Bank's interventions may have postponed a string of defaults by indebted governments, but these measures will merely push back the inevitable day of reckoning. Within the next 12 months, the U.S. Treasury will have to deal with refinancing $2 trillion in short term debt. And, that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion. Add to this is the cost of the wars in Iraq and Afghanistan. How in the world can the Treasury possibly borrow $3.5 trillion in only one year - an amount that equals nearly 30% of the US GDP?
Any guesses where the money to cover this will come from? Printing more money of course or more “quantitative easing,” as it is now more commonly referred to.
As the US dollar weakens, other currencies strengthen. This puts pressure on these countries as their exports become more expensive and as in the case of Japan, these countries will be forced to devalue their currencies in order to maintain a competitive edge. As a result we can expect to see these countries engage in a competitive race of currency devaluation to increase exports. While we will never see or hear any declaration of a global currency war, we have now entered a period when the entire global monetary system is under stress and the battle of currencies has already begun.
On September 15 former Federal Reserve Chairman Alan Greenspan made a speech to the Council on Foreign Relations. Some very interesting comments he made with respect to gold in response to a question were reported in an editorial in the New York Sun, "Greenspan's Warning on Gold". According to the article Greenspan did not mince his words and said, "Fiat money has no place to go but gold."
As I have mentioned many times in the past, the history of fiat money has been one of failure. It works well when economies are expanding, and have high levels of employment as well as strong GDP growth. But, when economic growth is contracting and central banks try to stimulate economies by pumping money into the system, the result of this action will lead to the debasement of the national currency and ultimately a period of hyperinflation. The most recent example of this was Zimbabwe.
Not only did Mugabe’s policies manage to debase the currency to the point where it became totally worthless, there was a shortage of the most basic essentials such as bread and clean water. Now, Zimbabwe does not even have a national currency and all domestic transactions are paid for in US dollars or South African Rands. While the collapse of the Zimbabwe dollar only impacted on that country, a collapse in the US dollar will have global ramifications.
While I do not see a total collapse in the US dollar or the euro, and of course I am not attempting to compare these major economic power houses with an insignificant country such as Zimbabwe, there are still lesson to be learnt. What happened in Zimbabwe has many consistencies with what happened in other countries where the national currencies collapsed. Unless the problems of massive sovereign debt, burgeoning government budget deficits, low GDP growth, high unemployment are resolved, the current scenario is unlikely to change. As more and more investors as well as central banks themselves know that the possible conclusion could be a sever drop in the value of their national currencies, they are going to diversify into other assets including gold.
Banks Keep Failing, No End in Sight
Since WaMu Fell, 279 Lenders Have Collapsed; Lost Jobs, Curtailed Lending and the Big Get Bigger
Wall Street Journal Online
Since WaMu Fell, 279 Lenders Have Collapsed; Lost Jobs, Curtailed Lending and the Big Get Bigger
Wall Street Journal Online
Let Bullion’s Doubters Try to Explain Why
from Rick's Picks
With December Gold closing on the $1340 target that we disseminated a while back, it’s time for a fresh perspective. We wouldn’t want readers to get the glum idea that $1340 is as good as we think it’s going to get. Far from it. The way gold and silver have been acting lately, it feels more like bullion prices are just getting off the launching pad. Naturally, there’s no shortage of skeptics who would tell investors to hold off buying until precious metals have corrected some. You’d be wary about diving in yourself if you were a financial advisor who’d kept clients out of gold for the last decade, even as its price has more than quintupled. But we think any investor who is cautious on bullion right now is going to regret it when, come January, prices are at least 10-15% higher.
Can we think of a reason for caution, just for the sake of argument? Not a good one – unless you perhaps believe that the central banks are about to jack up interest rates and smother the world’s tepid economy with a mega dose of austerity. The rationale most often cited these days for being cautious on bullion is that its price has simply been too hot not to cool down. Fair enough. But it is just as reasonable to ask why prices should cool down, given the unprecedented money blowout that is occurring throughout the world. And the word “blowout” is hardly an exaggeration. Japan, its primacy as an exporter on the line, is in a fight-to-the-death to suppress the yen’s value relative to the dollar. But look at the chart above if you want to see how little they’ve accomplished. Although the Bank of Japan’s opening shot on September 15 obviously spooked speculators, causing the yen to suffer its biggest one-day loss in years, nearly all of the downdraft (in red) has been recouped since.
And guess who has become the world’s most aggressive buyer of yen of late: the Chinese. After all, why would they sit idly by as a cutthroat competitor tries to rev up exports by manipulating its currency. China has been accused repeatedly by the U.S. of doing the same thing, but it seems doubtful that America will get the Chinese to back down. How do you threaten a country that holds nearly a trillion dollars worth of your debt? Enacting punitive new tariffs appears to be the answer, at least in the shallow, economically ignorant minds of our political leaders. But with the experience of the 1930s as precedent, we doubt that Smoot Hawley II will even come to a vote.
Meanwhile, with the dollar now crushing key technical supports with alarming regularity, it would appear that reality has finally turned against the flight-to-“safety” story that had captivated institutional money managers, if no one else. Under the circumstances, bullion investors would be wise to act aggressively. If there are good arguments for restraint at this time, we have yet to hear them.
from Rick's Picks
With December Gold closing on the $1340 target that we disseminated a while back, it’s time for a fresh perspective. We wouldn’t want readers to get the glum idea that $1340 is as good as we think it’s going to get. Far from it. The way gold and silver have been acting lately, it feels more like bullion prices are just getting off the launching pad. Naturally, there’s no shortage of skeptics who would tell investors to hold off buying until precious metals have corrected some. You’d be wary about diving in yourself if you were a financial advisor who’d kept clients out of gold for the last decade, even as its price has more than quintupled. But we think any investor who is cautious on bullion right now is going to regret it when, come January, prices are at least 10-15% higher.
Can we think of a reason for caution, just for the sake of argument? Not a good one – unless you perhaps believe that the central banks are about to jack up interest rates and smother the world’s tepid economy with a mega dose of austerity. The rationale most often cited these days for being cautious on bullion is that its price has simply been too hot not to cool down. Fair enough. But it is just as reasonable to ask why prices should cool down, given the unprecedented money blowout that is occurring throughout the world. And the word “blowout” is hardly an exaggeration. Japan, its primacy as an exporter on the line, is in a fight-to-the-death to suppress the yen’s value relative to the dollar. But look at the chart above if you want to see how little they’ve accomplished. Although the Bank of Japan’s opening shot on September 15 obviously spooked speculators, causing the yen to suffer its biggest one-day loss in years, nearly all of the downdraft (in red) has been recouped since.
And guess who has become the world’s most aggressive buyer of yen of late: the Chinese. After all, why would they sit idly by as a cutthroat competitor tries to rev up exports by manipulating its currency. China has been accused repeatedly by the U.S. of doing the same thing, but it seems doubtful that America will get the Chinese to back down. How do you threaten a country that holds nearly a trillion dollars worth of your debt? Enacting punitive new tariffs appears to be the answer, at least in the shallow, economically ignorant minds of our political leaders. But with the experience of the 1930s as precedent, we doubt that Smoot Hawley II will even come to a vote.
Meanwhile, with the dollar now crushing key technical supports with alarming regularity, it would appear that reality has finally turned against the flight-to-“safety” story that had captivated institutional money managers, if no one else. Under the circumstances, bullion investors would be wise to act aggressively. If there are good arguments for restraint at this time, we have yet to hear them.
"Official" Statistics Are Useless
And if all others accepted the lie which the Party imposed—if all records told the same tale—then the lie passed into history and became truth. 'Who controls the past' ran the Party slogan, 'controls the future: who controls the present controls the past.'"
- George Orwell, 1984, Book 1, Chapter 3
For all those who continue to doubt the statistically quetionable methods of our Labor Department, as well as for all others who mock those who doubt the veracity out of anything coming out of the BLS, the following chart should provide much needed closure. The top section of the chart below demonstrates weekly prior revisions in initial claims for all of 2010. Readers may be surprised to discover that beginning in April, of 2010, continuing through today, there have been 22 out of 23 consecutive upward prior weekly revisions! In other words, the BLS has a definitive mandate to underrepresent the "current" weekly data and to allow it to catch up with reality once it has become "prior", and thus no longer market moving, when in reality should the BLS present true data it would have likely missed estimates on more than half the occasions it has "beaten" and caused ridiculous market spikes like the one experienced earlier. Furthermore, combining all individual weekly data, demonstrates that the BLS has underrepresented initial claims by roughly 80,000 year to date. The chart pretty much leaves no room for doubt as to the BLS "trans-statistical" approach to quantifying data. As for the lower chart, it shows the same thing but with continuing claims, which have been revised upward pretty much consecutively for the entire year. Source
And if all others accepted the lie which the Party imposed—if all records told the same tale—then the lie passed into history and became truth. 'Who controls the past' ran the Party slogan, 'controls the future: who controls the present controls the past.'"
- George Orwell, 1984, Book 1, Chapter 3
For all those who continue to doubt the statistically quetionable methods of our Labor Department, as well as for all others who mock those who doubt the veracity out of anything coming out of the BLS, the following chart should provide much needed closure. The top section of the chart below demonstrates weekly prior revisions in initial claims for all of 2010. Readers may be surprised to discover that beginning in April, of 2010, continuing through today, there have been 22 out of 23 consecutive upward prior weekly revisions! In other words, the BLS has a definitive mandate to underrepresent the "current" weekly data and to allow it to catch up with reality once it has become "prior", and thus no longer market moving, when in reality should the BLS present true data it would have likely missed estimates on more than half the occasions it has "beaten" and caused ridiculous market spikes like the one experienced earlier. Furthermore, combining all individual weekly data, demonstrates that the BLS has underrepresented initial claims by roughly 80,000 year to date. The chart pretty much leaves no room for doubt as to the BLS "trans-statistical" approach to quantifying data. As for the lower chart, it shows the same thing but with continuing claims, which have been revised upward pretty much consecutively for the entire year. Source
The Russians "Get It!"
Ed Steer writes a daily commentary for Casey Research which I subscribe to. Yesterday, Ed had this interesting comment:
"Before I get into my gold stories for the day, I received an e-mail from someone by the name of Dimitry the other day... and this is what he had to report... "I just came from a trip to Russia and I was surprised how one can buy and sell any type [!] of world gold or silver coins at the major quasi-government Sber Bank. Prices of precious metals are clearly posted and regularly updated. Bullion and commemorative gold and silver coins readily available on display along with gold and silver bars up to 1 kg of Au. "Metallic" bank accounts are available and heavy promoted on window posters. Price check: 7.7 gram Russian gold coin was selling at the bank for 10,400 rubles [US$335]." Dimitry sent along four photos... and here they are."
Ed Steer writes a daily commentary for Casey Research which I subscribe to. Yesterday, Ed had this interesting comment:
"Before I get into my gold stories for the day, I received an e-mail from someone by the name of Dimitry the other day... and this is what he had to report... "I just came from a trip to Russia and I was surprised how one can buy and sell any type [!] of world gold or silver coins at the major quasi-government Sber Bank. Prices of precious metals are clearly posted and regularly updated. Bullion and commemorative gold and silver coins readily available on display along with gold and silver bars up to 1 kg of Au. "Metallic" bank accounts are available and heavy promoted on window posters. Price check: 7.7 gram Russian gold coin was selling at the bank for 10,400 rubles [US$335]." Dimitry sent along four photos... and here they are."
Stocks, Real Estate and Gold
from Casey Research
Now is a very bad time to have most kinds of equities; stocks in general are very overpriced, by almost every parameter. I'm not looking to sell my gold until I can buy solid blue chip stocks for dividend yields in the 8% to 10% area. That's after they cut their current dividends. Although it's certainly not the bargain it was 10 years ago. Nonetheless gold will go higher. Stocks will go lower. I don't know exactly when I'll sell my gold and buy stocks, but it will be when there's a panic into gold and when stocks are bargains. I'm sure I'll be afraid to make the trade when the time comes—but good trades almost always run counter to your emotions. Perhaps the tip-off will be when Newsweek or Time—if either still exists then—run a front cover with a golden bear tearing apart the New York Stock Exchange.
I think it will be a generation before American real estate is a solid buy again. And the world at large will likely have quite a different character then.
Full Article
from Casey Research
Now is a very bad time to have most kinds of equities; stocks in general are very overpriced, by almost every parameter. I'm not looking to sell my gold until I can buy solid blue chip stocks for dividend yields in the 8% to 10% area. That's after they cut their current dividends. Although it's certainly not the bargain it was 10 years ago. Nonetheless gold will go higher. Stocks will go lower. I don't know exactly when I'll sell my gold and buy stocks, but it will be when there's a panic into gold and when stocks are bargains. I'm sure I'll be afraid to make the trade when the time comes—but good trades almost always run counter to your emotions. Perhaps the tip-off will be when Newsweek or Time—if either still exists then—run a front cover with a golden bear tearing apart the New York Stock Exchange.
I think it will be a generation before American real estate is a solid buy again. And the world at large will likely have quite a different character then.
Full Article
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