Gerald Celente: What will the trends of 2010 be?

As usual in these weekly musings, we present items in the news media and the blogosphere that have ‎caught our attention during the previous week…..‎

• Richard J Maybury: Chaostan and beyond‎
• Ron Paul and Revolution?‎
• Resource and Energy Production Peaks
• Gerald Celente – Trends for 2010‎

Richard J Maybury: Chaostan and beyond

This week I have been reading Richard J Maybury’s account of the Second World War, entitled ‎‎“World War II – The rest of the story and how it affects you today”. I have to say that I found the book ‎absolutely riveting, and it contains lots of (fully documented) information of which I was unaware. ‎

As a follow-up, I checked out his website and came across an interview of Maybury by Pat Gorman of ‎Resource Consultants. ‎

I am summarizing excerpts from this as our centerpiece this week, for reasons that I hope will become ‎clear.‎

In 1992, Maybury coined the term Chaostan for the area from the Arctic Ocean to the Indian Ocean, ‎and Poland to the Pacific, plus North Africa.  That’s the most important area that never developed ‎political or legal systems based on the two laws that make civilization possible; namely :  “Do all you ‎have agreed to do”, which is the basis of contract law, and, “do not encroach on other persons or their ‎property”, which is the basis of tort law and some criminal law.  These are the principles on which the ‎Declaration of Independence and Constitution are based, especially the Bill of Rights.  After the ‎American Revolution, these ideas began to reach around the world, but their spread was cut short by ‎the rise of socialism in the mid-1800s.  Chaostan — the land of the Great Chaos — is the area that ‎never received those principles.‎

Throughout the ‘90’s, Maybury was warning that Washington had better sever political and military ‎ties with Chaostan, otherwise the US would be sucked into the chaos.‎

What has all this to do with us as investors? Maybury makes the point that the wars in Iraq and ‎Afghanistan have had, and are continuing, to be paid for. This financing is being done by the printing ‎of new dollars out of thin air. This has undermined, and will continue to undermine, the value of the ‎dollar worldwide; consequently the dollar value of real assets (gold, silver, platinum and other ‎commodities)  has been, and will be, driven up.‎

At the present time, there is no end in sight to US engagements in Chaostan. Governments there that ‎are enemies of the US there are delighted to see continuing developing US economic weakness, and if ‎the US attempts a withdrawal, are likely to engineer an incident that will draw her back into the ‎conflicts. Therefore, the trend above will continue; once again, the dollar price of real assets will ‎tend to increase over time.‎

The printing of dollars to cover war spending is of course in addition to the increase in the money ‎supply that has taken place to mitigate the effects of the recession. In addition, at the present the banks ‎are holding approximately ONE TRILLION dollars ready to lend, and at some point this “money” is ‎likely to avalanche into the economy.‎

As for details of the vast amount of military expenditure, Maybury discusses changes over time in US ‎priorities; the establishment of over 700 bases in 130 countries. The Defense Department isn’t really ‎defending Americans, it’s defending the US empire, meaning thugs abroad that are on the US payroll.‎
The Defence budget, huge though it is, has to be spread very thinly. Priorities have shifted from ‎maintaining air superiority, which requires state of the art fighter aircraft, to fighting the wars in Iraq ‎and Afghanistan and preparing for future flare-ups in Chaostan.‎

As an investment theme, this implies future dollar weakness as far as the eye can see, and for people ‎who already own gold, this creates a wonderful opportunity.  Most Americans have yet to discover the ‎precious metals — they’ve been taught by Keynesians to ignore them — so when they do discover ‎them, look out. He thinks the absolute floor on gold will be $3,000 and would not be surprised to see ‎‎$5,000 or more.  Same for platinum.  For silver, he’s looking for $50 at a minimum.‎

From Jesse’s Café Américain, comes…

Ron Paul: “Prepare for Revolutionary Changes in the Not-too-distant ‎Future.” ‎
‎
It certainly sounds as though Representative Paul expects some significant developments.
‎
Change is in the wind.

‎“Could it all be a bad dream, or a nightmare? Is it my imagination, or have we lost our minds? It’s ‎surreal; it’s just not believable. A grand absurdity; a great deception, a delusion of momentous ‎proportions; based on preposterous notions; and on ideas whose time should never have come; ‎simplicity grossly distorted and complicated; insanity passed off as logic; grandiose schemes built on ‎falsehoods with the morality of Ponzi and Madoff; evil described as virtue; ignorance pawned off as ‎wisdom; destruction and impoverishment in the name of humanitarianism; violence, the tool of change; ‎preventive wars used as the road to peace; tolerance delivered by government guns; reactionary views ‎in the guise of progress; an empire replacing the Republic; slavery sold as liberty; excellence and virtue ‎traded for mediocracy; socialism to save capitalism; a government out of control, unrestrained by the ‎Constitution, the rule of law, or morality; bickering over petty politics as we collapse into chaos; the ‎philosophy that destroys us is not even defined.
‎
We have broken from reality–a psychotic Nation. Ignorance with a pretense of knowledge replacing ‎wisdom. Money does not grow on trees, nor does prosperity come from a government printing press or ‎escalating deficits.
‎
We’re now in the midst of unlimited spending of the people’s money, exorbitant taxation, deficits of ‎trillions of dollars–spent on a failed welfare/warfare state; an epidemic of cronyism; unlimited supplies ‎of paper money equated with wealth.
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A central bank that deliberately destroys the value of the currency in secrecy, without restraint, without ‎nary a whimper. Yet, cheered on by the pseudo-capitalists of Wall Street, the military industrial ‎complex, and Detroit.
‎
We police our world empire with troops on 700 bases and in 130 countries around the world. A ‎dangerous war now spreads throughout the Middle East and Central Asia. Thousands of innocent ‎people being killed, as we become known as the torturers of the 21st century.
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We assume that by keeping the already-known torture pictures from the public’s eye, we will be ‎remembered only as a generous and good people. If our enemies want to attack us only because we are ‎free and rich, proof of torture would be irrelevant.
‎
The sad part of all this is that we have forgotten what made America great, good, and prosperous. We ‎need to quickly refresh our memories and once again reinvigorate our love, understanding, and ‎confidence in liberty. The status quo cannot be maintained, considering the current conditions. ‎Violence and lost liberty will result without some revolutionary thinking.
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We must escape from the madness of crowds now gathering. The good news is the reversal is ‎achievable through peaceful and intellectual means and, fortunately, the number of those who care are ‎growing exponentially.
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Of course, it could all be a bad dream, a nightmare, and that I’m seriously mistaken, overreacting, and ‎that my worries are unfounded. I hope so. But just in case, we ought to prepare ourselves for ‎revolutionary changes in the not-too-distant future.”‎

Resource and Energy Production Peaks

On our site we have featured the work of Chris Martenson and others concerned with developing ‎resource shortages. One of the investment gurus in this field is Dr Stephen Leeb, to whom Rice Farmer ‎refers in this piece.‎

from Rice Farmer ‎

Investment gurus are starting to see the handwriting on the wall regarding the coming (or already here) peaks in production of energy and minerals, which are needed to keep industrial civilization running. A number of minerals have already peaked or are approaching peak extraction rates. In this article an investment expert gives his view on the constraints caused by the inability to keep up with demand. To his credit, he sees the interconnectedness of all these mineral and energy resources, noting that a decline in one affects the others. While energy resources have been in the spotlight for some time, the world public seems to have little awareness of mineral peaks. One class of minerals that has gotten plenty of attention lately is the rare earth elements, and one can now find much information on their importance to technological applications, and China’s virtual monopoly on them. Just as China and Japan are still sparring over marine gas fields, the discussions over the supply of rare earths will become acrimonious as users around the globe feel the pinch.‎

Trends 2010‎

Gerald Celente, also known as Dr Doom and the Nostradamus of Modern Times is regarded as one ‎of the foremost trend predictors in the world. This author of Trends 2000 and Trend Tracking, and ‎publisher of The Trends Journal, is frequently a guest on television news and talk show programs. ‎The New York Post said “if Nostradamus were alive today, he’d have a hard time keeping up with ‎Gerald Celente.”‎
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Here are some of Gerald Celente’s health, environmental, social, entertainment, cultural, business and ‎consumer trends for 2010.

‎• The Crash of 2010: The Bailout Bubble is about to burst. Be prepared for the onset of the Greatest ‎Depression.
‎• Depression Uplift: The pursuit of elegance and affordable sophistication will raise spirits … and ‎profits.
‎• Terrorism 2010: Years of war in Afghanistan and Iraq – and now Pakistan – have intensified anti-‎American sentiment. 2010 will be the year of the lone-wolf, self-radicalized gunman.
‎• Neo-Survivalism: A new breed of survivalist is devising ingenious stratagems to beat the crumbling ‎system. And, they’re not all heading for the hills with AK-47’s and pork & beans.
‎• Not Welcome Here: Fueled by fear and resentment, a global anti-immigration trend will gather force ‎and serve as a major plank in building a new political party in the US.
‎• TB or Not TB: With two-thirds of Americans Too Big (TB) for their own good (and everyone else’s), ‎‎2010 will mark the outbreak of a “War on Fat,” providing a ton of business opportunities.
‎• Mothers of Invention: Taking off with the speed of the Internet revolution, “Technology for the Poor” ‎will be a major trend in 2010, providing products and services for newly downscaled Western ‎consumers and impoverished consumers everywhere.
‎• Not Made In China: A “Buy Local,” “My Country First” protectionist backlash will deliver a big ‎‎“No” to unrestrained globalism and open solid niches for local and domestic manufacturers.
‎• The Next Big Thing: Just as the traditional print media (newspapers/magazines) were scooped by ‎Internet competition, so too will new communication technologies herald the end of the TV networks ‎as we know them.‎

Richard Russell: “Don’t turn up your nose at silver”!

As usual in these weekly musings, we present items in the news media and the blogosphere that have caught our attention during the previous week….. 

• Money market fund redemption freezes?
• Who will buy Treasury bonds this year?
• Chinese car sales roaring ahead (and they all need fuel!)
• GDXJ – gold juniors ETF
• Willem Buiter warns of massive dollar collapse
• Massive social and political unrest bordering on chaos coming to America?
• Richard Russell: “Don’t turn up your nose at silver”!

 

Money market fund redemption freezes?

The following piece is courtesy of Jesse’s Café Americain. (Minor changes have been made)

Zero Hedge has an interesting review of proposed rule changes by the SEC and the Obama Administration which you can read in its entirety here.

Yet new regulations proposed by the administration, and specifically by the ever-incompetent Securities and Exchange Commission, seek to pull one of the three core pillars from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7.

The primary concern seems to be the new ability of money market fund managers to freeze redemptions (withdrawals) of funds at their discretion.

“A key proposal in the overhaul of money market regulation suggests that money market fund managers will have the option to ‘suspend redemptions to allow for the orderly liquidation of fund assets.’”

If you have the time, you should sit down and read through the entire essay at ZH, because it is fascinating. I understand that many will not because of the length and density of the piece, which is really not all that bad, and fairly well written as all of their pieces tend to be. I am not so adverse to some of the other changes in the MMFs such as the tightening of durations, but that is more a quibble.

One also has to wonder if and when the government will begin to more aggressively manage the access of private citizens to their 401K’s and IRA’s and other forms of savings. Or is it just sufficient to manage the things that one might hold in them?  Hard to say.

Now that the government will be forcing Americans to buy private health insurance (and presumably use it to prevent certain transmittable diseases for the public good as your private health insurer will have your records) where will they stop? What about life insurance, long term disability insurance, and retirement plans? How about psychological counseling and sensitivity training for social malcontents? “A gram is better than a damn.”

Here is the concluding paragraph from this essay and I wanted to highlight it here because otherwise it will be overlooked by many who should read and understand it. The conclusions that the author draws about WHY the changes are being made are more important perhaps than the changes themselves. Or at least to me, because I have very little money in any US money market fund, and even that is 100% short term Treasuries. The fraud and mispricing of risk in the US financial system has become pervasive and epidemic, such that a good stiff headwind could have taken it all down, and because of a lack of serious reform, still can. Rather than fixing potential causes of the next disaster, the Obama Administration seems content to block the escape routes and issue priority passes to the big Wall Street banks and a favored few.

“At this point it is without doubt that even the government understands that when things turn sour, and they will, the run on the bank will be unavoidable: their solution - prevent money from being dispensed, when that moment comes. The thing about crises, be they liquidity, solvency, or plain-vanilla, is that “price discovery” occurs suddenly, and at the very same time. And all too often, investors “discover” they were lied to, as the emperor, in any fiat system, always has no clothes.This Is the Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied – ZeroHedge

Just as in September 2008, when the banks were forced to look at each others’ balance sheets and realize that there were no real assets on the left backing up the liabilities on the right, so the moment of enlightenment occurs at the most importune time: just ask Hank Paulson. Had he known his action of beefing up Goldman’s FICC trading axes would have resulted in the “Ice-Nine’ing” (to borrow a Mark Pittman term) of money markets, who knows- maybe Lehman would have still been alive. Perhaps risking the cash access of 20% of US households and 80% of companies was not worth the few extra zeroes in Goldman’s EPS. But we will never know.

What we will know, is that now i) the government is all too aware that the market has become one huge ponzi, and that all investment vehicles, even the safest ones, are subject to bank runs, and ii) that said bank runs, will occur. It is only a matter of time. And just as the president told everyone directly to buy the market on March 3, so the SEC, the Group of 30, and Barney Frank are telling us all, much less directly, to get the hell out of Dodge. Alternatively, the game of “last fool in”, holding the burning hot potato, can continue indefinitely, until such time as the marginal utility of each and every dollar printed by Ben Bernanke is zero.”

 

Stand your ground and wait. All is well. Someone has to take the big hit while the important people are transported to safety.

The only constraint on the Fed’s printing money is the acceptability (marginal value) of the Bond and the dollar, which is the bond of zero duration. And the people making the decisions about printing and distributing those dollars are more unworthy of holding such power than you might imagine, even in your lowest expectations.

And if, even now, you do not ‘get this’ then the next ten years could be particularly disappointing.

 

Who will buy Treasury Bonds this year?

(Courtesy of Zero Hedge)

 

Brace For Impact: In 2010, Demand For US Fixed Income Has To Increase Elevenfold… Or Else

As everyone is engrossed by assorted groundless Christmas (and other ongoing bear market) rallies, and oblivious to the debt monsters hiding in both the closet and under the bed, Zero Hedge has decided it is about time to present the ugliest truth faced by our ‘intellectual superiors’ and their Wall Street henchman who succeeded in pulling off Goal #1 for 2009 - the biggest ever bonus season (forget record bonuses in 2010… in fact, scratch any bonuses next year if what is likely to transpire in the upcoming 12 months does in fact occur).

If someone asks you what happened in 2009, the answer is simple - two things. There was a huge credit and liquidity crunch, and then there was Quantitative Easing. The last is the Fed’s equivalent of band-aiding a zombied and ponzied corpse, better known as the US economy. It worked for a while, but now the zombie is about to go back into critical, followed by comatose, and lastly, undead (and 401(k)-depleting) condition.

In 2009, total supply of all USD denominated fixed income, net of maturities, declined by $300 billion from $2.05 trillion to $1.75 trillion. This makes sense: the abovementioned crunches stopped the flow of credit from January until well into April, and generally firms were unwilling to demonstrate to the market how clothless they are by hitting the capital markets until well into Q2 if not Q3. What happened was a move so drastic by the Fed, that into November, the worst of the worst High Yield names were freely upsizing dividend recap deals (see CCU) - the very same greed and stupidity that brought us here. Luckily, so far securitization and CDOs have not made a dramatic entrance. They likely will, at which point it will be time to buy a one-way ticket for either our southern or northern neighbor, both of which, in the supremest of ironies, transact in a currency that will survive long after the dollar is dead and buried.

Back to the math… And here is the kicker. Accounting for securities purchased by the Fed, which effectively made the market in the Treasury, the agency and MBS arenas, but also served to “drain duration” from the broader US$ fixed income market, the stunning result is that net issuance in 2009 was only $200 billion. Take a second to digest that.

And while you are lamenting the death of private debt markets, here is precisely what the Fed, the Treasury, and all bank CEOs are doing all their best to keep hidden until they are safely on their private jets heading toward warmer climes: in 2010, the total estimated net issuance across all US$ denominated fixed income classes is expected to increase by 27%, from $1.75 trillion to $2.22 trillion. The culprit: Treasury issuance to keep funding an impossible budget. And, yes, we use the term impossible in its most technical sense. As everyone who has taken First Grade math knows, there is no way that the ludicrous deficit spending the US has embarked on makes any sense at all… none. But the administration can sure pretend it does, until everything falls apart and blaming everyone else for its fiscal imprudence is no longer an option.

Out of the $2.22 trillion in expected 2010 issuance, $200 billion will be absorbed by the Fed while QE continues through March. Then the US is on its own: $2.06 trillion will have to find non-Fed originating  demand. To sum up: $200 billion in 2009; $2.1 trillion in 2010. Good luck.

As we pointed, the number one reason why 2010 is set to be a truly “interesting” year is a result of the upcoming explosion in US Treasury issuance. Fiscal 2010 gross coupon issuance is expected to hit $2.55 trillion, a $700 billion increase from 2009, which in turn was  $1.1 trillion increase from 2008. For those of you needing a primer on the exponential function, click here. But wait, there is a light in the tunnel: in 2011, gross issuance is expected to decline… to $1.9 trillion.

And while things are hair-raising in “gross” country (not Bill…at least not yet), they are not much better in netville either. Net of maturities, 2010 coupon issuance will be about $1.8 trillion, a 45% increase from the $1.3 trillion in FY 2009 (and the paltry $255 billion in 2008).

Now everyone knows that the average maturity of the UST curve has become a big problem for Tim Geithner: nearly 40% of all marketable debt matures within a year (a percentage that has kept on growing). In fact, the Treasury provided guidance in its November 2009 refunding, in which it stated that it intends “to focus on increasing the average maturity” of its debt after relying heavily on Bill issuance in H2. Once again, we wish Tim the best of luck.

Why our generous best intentions to the US Treasury? Because unless the US consumer decides to forgo the purchase of the 4th sequential Kindle and buy some Treasuries (and not just any: 30 Year Bonds or bust), the presumption that the Bond printer will have the option of finding vast foreign appetite for its spewage is a very myopic one. We already know that China is a major question mark, and will aggressively be looking at pumping capital into its own economy instead of that of Uncle Sam’s - at some point the return on investment in its own middle class will surpass that of funding the rapidly disappearing US middle class. That tipping point could be as soon as 2010.

As for Japan - the country has plunged into its n^th consecutive deflationary period. Whether or not the finance minister announces yet another affair with the Quantitative Easing whore on any given day, depends merely on what side of the bed he wakes up on. The country will have its hands full monetizing its own sovereign issuance, let alone ours.

Lastly, the UK - well, with the country set to have zero bankers left in a few months, we don’t think the traditionally third largest purchaser of US debt will be doing much purchasing any time soon.

None of this is merely speculation: October TIC data confirmed these preliminary observations. It will only become more pronounced in upcoming months.

How about that great globalization dynamo: emerging markets? Alas, they have their hands full with issuing their own record amounts of both sovereign and corporate debt as well: in 2009 gross EM debt issuance reached an astounding $217 billion, $29 billion higher than the previous record in 2007. Gross EM issuance was particularly high in the last quarter at $73 billion, with October breaking the record for the largest ever monthly gross issuance of emerging market global bonds at $38 billion (January is traditionally the busiest month of the year.) With $81 billion, 2009 was notably a record year for sovereign bonds, while gross issuance of corporate bonds amounted to $136 billion, the second highest level after that of 2007 with $155 billion.

Bottom line: everyone has major problems at home, and is more focused on the supply than the demand side of the equation.

What options does this leave for the administration? Very few, and all of them are ugly. As we stated earlier on, the options for the Fed are threefold:

1. Announce a new iteration of Quantitative Easing. This will be met with major disapproval across all voting classes (at least those whose residential zip codes do not start with 10xxx or 068xx), creating major headaches for Obama and the democrats which are already struggling with collapsing polls.
2. Prepare for a major increase in interest rates. While on the surface this would be very welcome for a Fed that keeps hinting that deflation is the biggest concern for the economy, Bernanke’s complete lack of preparation from a monetary standpoint (we are surprised the Fed’s $200 million reverse repos have not made the late night comedy circuit yet) to a forced interest rate increase, would likely result in runaway inflation almost overnight. The result would be a huge blow to a still deteriorating economy.
3. Engineer a stock market collapse. Recently investors have, rightfully, realized there is no more risk in equities, not because the assets backing the stockholder equity are actually creating greater cash flow (as we demonstrated recently, that is not the case), but simply because taxpayers have involuntarily become safekeepers for the entire stock market, due to Bernanke’s forced intervention in bond and equity markets. Yet the President’s Working Group is fully aware that when the time comes to hitting the “reverse” button, it will do so. Will the resultant rush into safe assets be sufficient to generate the needed endogenous demand for Treasuries is unknown. It will likely be correlated to the size of the equity market drop.

If the Fed decides on option three, we fully believe a 30% drop (or greater) in equities is very probable as the new supply/demand regime in fixed income becomes apparent. We hope mainstream media takes the ideas presented here and processes them for broader consumption as indeed the Fed is caught in a very fragile dilemma, and the sooner its hand is pushed, the less disastrous the final outcome for investors. Then again, as Eric Sprott has been pointing out for quite some time, it could very well be that the US economy has become merely one huge Ponzi, and as such, its expansion or reduction on the margin is uncontrollable. We very well may have passed into the stage where blind growth is the only alternative to a complete collapse. We hope that is not the case.

 

Chinese car sales roaring ahead (and they all need fuel!)

SHANGHAI, Jan. 4 (Xinhua) — Whole year auto sales for the U.S. auto giant General Motors (GM) in the Chinese market topped 1.82 million units, up 66.9 percent from a year earlier, the company said Monday in an annual business report.  

    Bullish sales of Buick, Chevrolet and Wuling vehicles boosted the market share, which expanded to an estimated 13.4 percent in 2009, up 1.3 percentage points from that in the previous year, according to the report.  

    Sales for GM’s original brand Buick in China in 2009 surged 59.6 percent from a year earlier to 447,011 unites. The company’s Chevrolet sales in China reached more than 330,000 units, up 67.1 percent year on year.  

    SAIC-GM-Wuling, GM’s commercial vehicle tie-up with Shanghai Automotive Industries Corp (SAIC) and Liuzhou Wuling Automobile, sold more than 1 million vehicles in 2009, up 65.1 percent year on year, the report said.  

    GM China president Kevin Wale expected better performance on China’s market this year, saying the GM would expand further but at a slower pace.  

    From January to November, China produced and sold more than 12.2 million cars, making it the world’s largest auto market, the China Association of Automobile Manufacturers announced early this month.

 ALL OF THESE CARS HAVE TO BE FUELLED!

 

GDXJ – gold juniors ETF 

Most of our readers will be familiar with the GDX ETF, which tracks the performance of an index of major gold producers. Towards the end of 2009, a new ETF, symbol GDXJ, was launched, which tracks the performance of a set of junior precious metals mining companies. Interestingly, it includes such silver stalwarts as Silver Standard and Silver Wheaton, which can hardly be described as junior. Now if you believe in an imminent (or not so imminent) precious metals boom, this is a must-own stock….

From Arabian.money.net comes the following note:

Last year saw the launch of the first ETF covering junior mining stocks (GDXJ) and for a longer term play on the gold price with maximum leverage to the upside this looks a good choice. The ETF is highly diversified, avoiding the risk of picking a dud among the many junior firms, while still exposed to the precious metals sub-class with the highest upside in a boom, and is also very liquid, unlike the small stocks themselves.

A diversified gold and silver portfolio for 2010 should therefore include the physical metals, selected major stocks and some exposure to the smaller companies. This will put investors in a position to capitalize on the big upswing in precious metal prices which is coming this year (see this article).

Willem Buiter warns of massive dollar collapse

Americans must prepare themselves for a massive collapse in the dollar as investors around the world dump their US assets, a former Bank of England policymaker has warned.  

By Edmund Conway, Economics Editor of the Daily Telegraph, UK
Published: 5:34PM GMT 05 Jan 2009

The long-held assumption that US assets - particularly government bonds - are a safe haven will soon be overturned as investors lose their patience with the world’s biggest economy, according to Willem Buiter.

Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US.

The warning comes despite the dollar having strengthened significantly against other major currencies, including sterling and the euro, after hitting historic lows last year. It will reignite fears about the currency’s prospects, as well as sparking fears about the sustainability of President-Elect Barack Obama’s mooted plans for a Keynesian-style increase in public spending to pull the US out of recession.

Writing on his blog , Prof Buiter said: “There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place.”

He said that the dollar had been kept elevated in recent years by what some called “dark matter” or “American alpha” - an assumption that the US could earn more on its overseas investments than foreign investors could make on their American assets. However, this notion had been gradually dismantled in recent years, before being dealt a fatal blow by the current financial crisis, he said.

“The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally,” he said. “Even the most hard-nosed, Guantanamo Bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed.”

He said investors would, rightly, suspect that the US would have to generate major inflation to whittle away its debt and this dollar collapse means that the US has less leeway for major spending plans than politicians realise.

Massive social and political unrest bordering on chaos coming to America?

The Daily Bell is pleased to publish an interview with the distinguished libertarian attorney and activist, Edwin Vieira, Jr.

Introduction: Dr. Vieira holds four degrees from Harvard: A.B. (Harvard College), A.M. and Ph.D. (Harvard Graduate School of Arts and Sciences), and J.D. (Harvard Law School). For over thirty-six years he has been a practicing attorney, specializing in cases that raise issues of constitutional law. He has presented numerous cases of import before the Supreme Court and written numerous monographs and articles in scholarly journals. His latest scholarly works are Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution (2d rev. ed. 2002), a comprehensive study of American monetary law and history viewed from a constitutional perspective, and How to Dethrone the Imperial Judiciary (2004), a study of the problems of irresponsible “judicial supremacy”, and how to deal with them. With well known libertarian trader Victor Sperandeo, he is also the co-author (under a nom de plume) of the political novel CRA$HMAKER: A Federal Affaire (2000), a not-so-fictional story of an engineered “crash” of the Federal Reserve System, and the political revolution it causes. He is now working on an extensive project concerned with the constitutional “Militia of the Several States” and “the right of the people to keep and bear Arms.”Read Interview Now … 

 

Here is a brief synopsis of what Dr. Vieira had to say:

Daily Bell: Thanks for sitting down with us. Let’s get right to it. In your view, what are the most critical domestic problems facing America? 

Edwin Vieira Jr.: Two stand out. The foremost problem - because it is the source of, or contributes significantly to, almost every economic difficulty now plaguing this country - is the inherent and ineradicable instability of the present monetary and banking systems, centered around the Federal Reserve System. (our emphasis)

The second problem derives from the first. It is the ever-accelerating development of a first-class para-militarized police-state apparatus centered around the United States Department of Homeland Security, with its tentacles reaching down into every police force throughout the States and localities. Fundamentally, this apparatus is not, and never was, designed to deal with international “terrorism”. If that were its goal, its first task would be absolutely to secure the southern border of the United States, which it has never seriously attempted to do. Rather, it is being set up to deal with what the political-cum-financial Establishment anticipates (and I believe rightly so) will be massive social and political unrest bordering on chaos throughout America when the monetary and banking systems finally implode in the not-so-distant future – surely in hyperinflation, and probably in hyperinflation coupled with a gut-wrenching depression. (our emphasis)

 

Richard Russell: “Don’t turn up your nose at silver”!

Richard Russell is the “grandfather of investment newsletter writers” having written the Dow Theory Letters since 1958, so he has seen more booms and busts first hand than most and also has called many tops and bottoms so he bears listening too.  This is an excerpt on silver from his latest letter… 

“They call it ‘the poor man’s gold’. But don’t turn your nose up at silver. The dollar was originally defined in terms of silver. When precious metals are on the rise (as now), silver tends to be seen as a monetary metal. When times are bad, silver is seen as an industrial metal. Silver has a huge number of industrial uses; silver is the best conductor of electricity. Unlike gold, silver is actually used (and used up) in industry. Thus, a large amount of silver is lost every year. In contrast, 85% of all the gold ever mined in all history is still around; it’s in your teeth or in your sweetie’s bracelet or in that ancient Egyptian ring that you see in your local museum.

“Historically, when silver gets going, it tends to make huge percentage moves. I think you can see that from the long-term chart below. For instance, back in November 2008, silver was selling for 8.65 an ounce. Today an ounce of silver is selling for 18.10 an ounce, more than double.

“Silver is now climbing back from a drastic correction, as you can see via the chart below. In December silver hit a high of over 19 dollars an ounce. Back in 1980 (and I remember this well) silver climbed wildly (limit up day after day), and it hit $50 dollars an ounce around January of 1980.

“Silver is now in an erratic bull market. How high it may go I don’t know, but I would not be shocked to see silver ultimately climb above its 1980 price of $50 bucks an ounce. Historically, once ounce of gold will buy around 15 ounces of silver. Today an ounce of gold will buy 62 ounces of silver. Silver compared with gold is dirt-cheap today. (Our emphasis)

“How to invest in silver? I like the 100 ounce bars if you can find them (they weigh about 8.5 pounds each). Or buy the 10 ounce bars. Or you can buy the exchange traded fund SLV.

“Yesterday, both gold and platinum closed at new highs for the move. Silver is lagging behind, but when silver finally catches up, it may be a stunner. Over the last year the price of silver doubled; gold didn’t perform that well.

“Below I show a point & figure chart of silver. The white metal is now in a well-established rising trend. The upside target is the 21 box. If silver hits the 22 box, that will light the fuse. If silver hits the 22 box, I will view the whole structure that you see on this chart as one huge base.

“To put it briefly, I like silver. Gold has one advantage over silver, every central bank owns some gold, and most want more.”

 

Any questions or thoughts on any of the above?  Leave a comment below and we’ll do our best to answer any questions…

 

 

“Get Your Gold the Hell Outta Here!”

By Doug Hornig, Casey’s Gold & Resource Report

That’s the directive that came down from HSBC USA in late November.‎

It seems that everyone these days wants gold. Real, physical gold coins that they ‎can hold in their hands, or bars that they’re assured are resting safely in a well-‎guarded vault. HSBC’s New York vault, for example, buried deep below its 5th ‎Avenue tower, where it has stored people’s gold since it inherited the facility from ‎Republic Bank a decade ago. ‎

But no more.‎

HSBC has served notice to its retail customers – many of whom are simply ‎middle-men and custodial services which store gold with HSBC on behalf of ‎hundreds of their own account holders – that all their gold must be out of its ‎facility by July 2010. Otherwise, folks, prepare for an unwelcome knock at your ‎door. HSBC’s letter says that, in the absence of directions to the contrary, clients’ ‎metal “will be returned to the address of record… at your expense.”‎

Picture, if you will, what the Wall Street Journal reported: “fleets of armoured cars ‎laden with gold ferrying the precious metal out of New York.”‎

Where to? That’s a good question. One destination is a pair of warehouses ‎operated by FideliTrade, the parent company of Delaware Depository Service ‎Co. Its vaults in Wilmington have been filling up quickly, leading Jonathan Potts, ‎the managing director, to comment that, “I have never seen any relocation like ‎this.” Other depositories have seen a similar run.‎

The logic behind HSBC’s decision, according to the Journal, is simple. The vaults ‎are being cleared of smaller clients in order to make more room for institutional ‎holdings, because “retail customers tend to be more expensive [to service] in part ‎because of their diverse holdings. They usually buy American Eagle or Canadian ‎Maple Leaf coins, and bars of various weights and sizes, all of which need to be ‎categorized and stored separately. In contrast, institutions typically buy ‎standardized bars of 100 or 400 ounces, making them easier to store. Institutions ‎also tend to hold the metal for long periods.”‎

HSBC itself didn’t say why it’s doing this (in fact, its letter wasn’t intended for ‎public release). So, predictably, the Internet exploded with rumors that its action ‎had more sinister motives.‎

Chief among them has been the tungsten story. That one, in case you haven’t ‎already heard it, maintains that a foreign gold buyer – some say Indian, some ‎say Chinese – found to its dismay that bars it recently purchased were merely ‎gold-plated tungsten. (Tungsten would be the metal of choice for a counterfeiter ‎because it’s the closest metal to gold in specific gravity, and can fool the most ‎basic test for purity.) Some go as far as to claim that Fort Knox is full of fakes, ‎deliberately placed there to make our official stash appear bigger than it is. A ‎suspicion that’s easily stoked since no outside auditor has inspected U.S. gold ‎holdings in over 50 years.‎

Be that as it may, the latest rumor claims that the appearance of tungsten bars at ‎this time is going to cause widespread chemical testing of gold bars, and HSBC ‎doesn’t want to be caught with anything bogus. Thus they’re preemptively ‎moving their gold out, protecting themselves and at the same time laying off the ‎need to do any testing onto someone else.‎

This is a great tale, but it ignores the fact that it’s largely coins and small bars ‎that are being moved, and those are not cost effective to counterfeit in tungsten. ‎In addition, that the story is presently confined to the Net means it’s fiction until ‎proven otherwise. As Ed Steer – GATA activist and author of Casey Research’s ‎Gold and Silver Daily – points out, “If it were true, Bloomberg would be all over it ‎in a heartbeat.” ‎

Or someone would. And even if the mainstream media failed to do their job, ‎there’s still the absence of a smoking gun. Who’s seen the tungsten bars? What ‎are the names of officials who can confirm the fraud? Why aren’t the Indians ‎who’ve been ripped off waving the phonies in front of a TV camera? These ‎questions don’t yet have satisfactory answers. Thus the rumor will have to ‎remain just that.‎

Rumor #2: HSBC has less gold on deposit than it promises, and it’s doling out ‎what it does have to its best friends. This one might make some sense if HSBC ‎were getting out of the gold business entirely. But it isn’t. And if it does have any ‎physical shortages, it can cover them indefinitely with paper “equivalents.”‎

Rumor #3: HSBC is going under. Those storing large amounts of gold know it, ‎and they’re protecting their assets from future claims by creditors. HSBC is hiding ‎the mass exodus of gold by claiming to have ordered it. No way to confirm this, of ‎course, but the volume of gold that’s leaving means an awful lot of people know ‎what’s happening. Word of the bank’s fragility would surely have leaked out by ‎now. That it hasn’t makes this one highly doubtful – not to mention that HSBC ‎likely falls into the “too big to fail” category and would be propped up if it faced ‎collapse.‎

Rumor #4: The most outlandish of all. Under this scenario, Washington suspects ‎an attack in conjunction with the terrorist trials, and it’s ordered gold moved out of ‎New York so it isn’t contaminated in the event of a dirty bomb. (Those with the ‎deepest, darkest level of cynicism claim that this would also provide the ‎government with a handy excuse to default on foreign claims to physical metal – ‎as in, sorry, it’s gone, but here’s what you’re owed in dollars.)‎

All of these make for spicy Web chatter, but after checking with our own sources, ‎we believe that the truth is far more mundane, yet quite exciting in its own right. ‎In essence, we think the WSJ’s analysis is pretty close, with a twist.‎

It all has to do with the COMEX. That exchange, which handles futures activity in ‎gold, has to maintain a cache of metal with which to settle trades. As a courtesy, ‎it will also arrange to store gold for buyers who don’t want to take physical ‎delivery. But it has no vaults of its own. It contracts with four banks to do the ‎actual storage, though only two maintain significant amounts: of the 9.73 million ‎ounces of COMEX gold, Scotia Mocatta has the most, nearly 5.1 million; HSBC ‎USA is next, with over 4.1 million.‎

The amount of gold warehoused by the COMEX has exploded since the metal’s ‎bull run began in 2001, as you can see from the following chart (where ‎‎“registered stocks” are sitting there with someone’s name already on them, and ‎‎“eligible stocks” are awaiting either registration or delivery):‎

 

The trend is obvious, and what it means is that HSBC needs an ever-increasing ‎amount of space for its COMEX gold. Provided, of course, that the trend remains ‎in place. Or accelerates.‎

HSBC has cast its vote. It clearly believes that it’s going to be getting more gold ‎from the COMEX, maybe a lot more, and it’s making room by giving the boot to ‎other depositors. Perhaps the bank knows something we don’t know, or perhaps ‎it’s just acting out of reasonable expectation.‎

Either way, it’s telling us that the demand for gold is going to continue rising. And ‎coming from a major bullion bank, that’s about as bullish a signal as anyone ‎could want. If you don’t own any physical gold, it’s time.‎

Right now, gold is a bit off its recent highs… so, as believers in sound money, the Casey folks are ‎stocking up on their yellow metal before its price resumes its journey to the moon. This is the time ‎to learn everything you can about how and from whom to buy gold, where to safely store it, gold ‎proxies, and major gold stocks. Check out Casey’s Gold and Resource Report risk-free for 3 ‎months – it’s only $39 per year, a mere pittance for what you’ll get out of it. Click here to learn ‎more about gold and gold’s “slingshot effect.”‎

Worried about how to safely store your own gold?  Module 7 of our Gold Survival Guide ecourse shows you 4 ways to store gold.  You can get free access to the ecourse here which also shows 9 specific methods to buy gold and silver.

China becomes worlds biggest gold buyer in 2009

Big changes were seen in 2009 in the global gold market.  Not only was it the first time in 21 years that the world’s central banks became net buyers of gold, but China was also the biggest buyer of gold, adding 454 tonnes to it’s reserves.  Russia and India were the other major buyers in 2009.

Full article from ChinaMining.org is here.

What will 2010 bring for gold and the markets?

This week, along with almost everyone else, we surmise about what’s likely to come our way in 2010. ‎As usual, it’s reasonably clear what will happen, but who knows when?‎   We’ll cover…

• Grain shortages
• Nation state defaults
• Individual US state defaults
• Municipal defaults
• Mortgagee defaults
• Commercial real estate collapse?‎
• Rising interest rates?‎
• Terror 2010 – courtesy of Gerald Celente‎
• Whither the US dollar?‎
• Many more bank failures
• Gold and silver volatility

‎ First, a quote from Niall Ferguson, Laurence A. Tisch Professor of History, Harvard University.‎

‎“Mr. Obama is slowly pushing America toward financial ruin. His $787 billion stimulus failed to ‎regenerate the economy. His health care reform bill will cost taxpayers nearly $2.5 trillion. He has ‎effectively nationalized the automakers, the financial sector and the banking system. His environmental ‎regulations will stifle industry and manufacturing. Unemployment is high. The housing market ‎continues to sag. Inflation is increasing. The dollar is plummeting. The nation’s infrastructure is ‎crumbling. ‎
The budget deficit for 2009 was over $1.4 trillion. It is scheduled to be $1.5 trillion in 2010. Under his ‎administration, the national debt is projected to explode by more than $10 trillion in 10 years. He is ‎burying America under a mountain of debt. We are becoming the United States of Argentina”. ‎

• Grain shortages

Some recent work of Eric de Carbonnel of Market Skeptics suggests that there could be widespread ‎grain and soybean shortages in 2010. World grain stocks are at multi-decade lows and the latest ‎harvests around the globe have been affected by bad weather and are patchy at best. Look for rising ‎grain and soybean prices and concomitant rises in the prices of downstream food products.‎

• Nation state defaults

Several European nations and indeed the entire European Union are at a crossroads. The EU is coming ‎under pressure as individual member states such as Greece become effectively bankrupt.  Look for a ‎wild ride in the value of the euro this year. The UK is also in a parlous financial condition. ‎

• Individual US state defaults

We know about California’s huge and ongoing budget shortfalls. Look for other states to follow in her ‎footsteps. More layoffs, cuts in services and increased taxes are coming.‎

• Municipal defaults

Ditto individual cities. ‎

• Mortgagee defaults

We’re not in subprime Kansas now, Dorothy. We’re in prime ARM-land.  The next big swathe of ‎ARMs (Adjustable Rate Mortgages) is coming up for resetting in 2010, in many cases resulting in doubling or more of monthly ‎repayments. If long term rates are forced to rise further as a result of the insatiable borrowing ‎requirements of the US government, the reset rates would become even more stringent, meaning more ‎mortgagee defaults would ensue.‎

• Commercial real estate collapse?‎

We expected a collapse in commercial real estate in 2009. I happened to be in St Louis from February ‎through June of 2009.  My local (39000 sq ft) Circuit City store became vacant in February. It was still ‎vacant when I left in June.  There is massive overcapacity across the US, and commercial real estate is ‎often more highly leveraged than residential property. The crash is coming – but this year? We can’t ‎say for certain, but we do assign a high probability to this event. ‎

• Rising interest rates?‎

As we noted above, there is likely to be upward pressure on long-term rates – but what about short-‎term rates? The Fed is between the proverbial rock and a hard place – raise rates and choke off a ‎nascent “recovery” – or keep rates low and watch incipient inflation or a renewed dollar decline. Our ‎guess is that they will keep rates near zero.‎

• Terror 2010 – Courtesy of Gerald Celente (Trends Research Institute)‎

Look for a follow up to 9/11 in 2010.  If this were to happen, it would almost certainly result in a Bank ‎Holiday, amongst other consequences. Make sure you are prepared for an extended period (weeks) of ‎bank closure.‎

• Strengthening, then weakening US dollar

The US dollar is currently strengthening against other fiat currencies. We view this as a temporary ‎phenomenon – look for a continuation of its secular decline later in the year.‎

• Gold and silver volatility

Well, is it gold $2000 and silver $50 in 2010? Or gold $800 and silver $10?  Who knows? We don’t. ‎But what we can say is that volatility in the precious metals markets is set to increase markedly this ‎year. We have seen signs of this in the latter part of 2009. In 2010 we could see both $800 and $2000 ‎for gold. Hold on to your hats. It’s going to be a wild ride! Don’t buy on margin and use price ‎decreases to dollar cost average your position in the physical metals.‎

And finally to finish is this brief comment from Mike “Mish” Shedlock which is a nice summary of just some of the global problems still to be resolved…

Global Imbalances Mount

• Global imbalances are cropping up like weeds in places like Greece, Spain, Vietnam, Iceland, Vietnam, Latvia, and Lithuania.
• There are massive property bubbles in China, Canada, the UK, and Australia.
• Japan is in a foolish fight against deflation and sinking further in debt
• Commercial real estate in the US is on the verge of bringing down hundreds of regional banks.
• Cities in the US are under massive pressure because of unsustainable pension plan promises.
• Global terrorism is on the rise

How long this mess hangs together without a huge crisis in a major currency is the question everyone should be asking. Sadly, most are oblivious to the widening structural cracks.

So be thankful that you are part of the well informed minority!

Best wishes to all for 2010. Live long and prosper!‎