Stephen Leeb: 5 Year Gold Price Target $5500

Wild Bills Weekly Wanderings 30 June 2010

This week, during our wanderings, we have pondered remarks made by the following commentators.

• Mary Holm

• Bob Prechter

• Stephen Leeb

• Texans think big

• Eric King on the Bank for International Settlements

• Mary Holm – Gold as Investment?

In the NZ Herald on Saturday last, Mary Holm was asked her opinion about gold as an investment. This was her reply…

“I don’t know a lot about gold as an investment. That’s because I’ve never come across anyone whose opinion I respect who recommends gold in any quantity for ordinary investors. For one thing, it generates no income. For another, the price can be pretty erratic.
Sure, this century gold has risen dramatically. But in the past few decades of last century the picture was decidedly different. What’s more, the recent rise is making some people worry about a bubble. Here’s an interesting quote from Anders Bylund on the Motley Fool website:
“Is gold bullion the new tulip bulb? Looking at a long-term chart of gold prices, it’s hard not to reach that conclusion. The glinting stuff has tripled in value in five short years, and it’s currently riding a rocket sled of seemingly speculative gains.
“But there’s nothing intrinsically valuable about gold. You don’t eat it, you can’t sleep on it, and the metal has rather limited real-world uses in general. Shares rise over the long term because people work at making the underlying businesses better and more profitable. Gold? Eh, dig up some more.”
I don’t know much about Bylund, but I like his argument better than yours. I would never suggest someone sell their house and invest the proceeds in gold”.

This reply prompted the following rejoinder from me – I don’t think Ms Holm is that likely to publish it though…

This is interesting, Mary. You open by saying that you don’t know a lot about gold as an investment, yet you close by saying you would never suggest someone selling their house and investing the proceeds in gold….

Gold has been the premier choice to preserve wealth for over 5000 years. Sure there are ups and downs – just like there is in any share market. However, of note is the fact that a fairly good suit would have cost you around USD 35 dollars in 1970 – equivalent to an ounce of gold. What’s the cost of a good suit now? Hmm, you can buy a fairly good suit for around USD1200 – the current price of that same ounce of gold - I would think…

I gather you have no respect for the investment acumen of Jim Rogers, Marc Faber, George Soros,  David Einhorn (of Greenlight Capital), or Robert Kiyosaki, well-known to New Zealanders, who are a few of the more outspoken proponents of ownership of gold (and silver, by the way).

The critical issue at this moment in time is the dilemma of Governments around the Western World (and Japan) who are facing extreme economic and financial headwinds –rapidly aging populations who are placing, and will continue to place, increasing demands on state coffers, together with a financial system which has a rotten core because banks are not disclosing their real losses, even now, but have been allowed to “mark to model”.  Mr Bernanke would like to flood the US economy with helicopter money, if this does indeed happen, there will be severe inflation down the road – one of the environments in which gold does indeed thrive. Interestingly, gold shines in severe deflationary times also. In the deflation that occurred during and following the Great Depression, the best performing stocks were gold miners, such as Homestake Mining.

If you would like to get up to speed in the world of investment in gold (and silver), may I suggest that you check out our website,  goldsurvivalguide.co.nz, where you will find a wealth of material discussing this topic.  In fact, further on in this article, you will find Stephen Leeb discussing Homestake Mining…

Yes, we are involved in selling gold – we’ve bought it for ourselves as well!

Yours sincerely,

Wild Bill  (Forrest Hill).

• Bob Prechter – Deflationary Permabear

Bob Prechter is a well-known practitioner of what is known as Elliott Wave theory, and the application of this discipline in conjunction with socioeconomics. He is also a noted permabear, having long held the view that a market crash is looming just over the horizon. However, he is also of the opinion that gold will be subject to a severe correction, but that he would become a big buyer if the price were to drop back to $200 per ounce. Well, all I can say is if that were to happen, I would be a big buyer also…

The following interview is excerpted from The Elliott Wave Theorist by Robert Prechter, published June 18, 2010

The Daily Crux: OK, so you don’t think the Fed will go that far. But what if the government got involved and tried to inflate its way out by issuing massive amounts of Treasury bonds to the Fed? Wouldn’t that create inflation?
 
Robert Prechter: If the government tried to do that, bond holders would get spooked, and interest rates would go up and stay ahead of the printing. At the same time, other credit prices—municipal, corporate and consumer—would implode. When the supply of credit is far bigger than the supply of money—and it is by a huge margin—the value of old credit can contract faster than new bonds can be printed. The net result would still be deflation.
 
But this is not the most likely scenario. Have you noticed that even the Fed chairman has been telling Congress it needs to stop spending and borrowing? The Fed doesn’t want this to happen any more than other creditors do.
 
If the Treasury’s interest rates do soar, it will not likely be due to inflation fears but to fear of government default. If the government is forced to pay higher and higher rates, it will become a black hole for money. Spiraling Treasury rates would suck money from other sources, causing banks, municipalities and companies to fail, ruining all of their debts, which would be deflationary.
 
Crux: Will hyperinflation ever happen in the U.S.?
 
Prechter: It certainly might. But it could only happen after the bond market implodes, not before. Then, if politicians get hold of a press, they might decide to print. But this is political conjecture, not monetary analysis. First we have to cross the deflationary valley, and this could take longer than almost anyone thinks.
 
Crux: So what you’re saying is that inflation is possible, but that it can’t happen until deflation has run its course. What would you be looking for to indicate that deflation was over and that inflation was beginning to become a danger?
 
Prechter: A banking crisis, in which thousands of banks shut their doors. Thirty-three percent unemployment. A ruined private and municipal bond market. And a panic in government bonds. If all those things happened, then you would have to be on the lookout for legislation allowing the government to take over the printing of money or to force the Fed to monetize new federal debt at a rapid rate. I think we will have to see all these things before hyperinflation will become possible. If all of this happens, trade all your greenbacks immediately for gold and raw land.
 
Crux: Are there any scenarios that would change your mind, that would make you think you may be wrong and that inflation is becoming a threat?
 
Prechter: If the S&P index, real estate and the CRB commodity index all take out their price highs of 2006-2008, it would probably be enough to indicate runaway inflation. We keep a very close eye on all the key markets and will try to be ahead of any such development.

 

• Stephen Leeb – Gold vs Gold Stocks

Gold

***** This century’s best asset, so far.
***** Why gold could rise 4X higher by 2015.
***** Why gold stocks could soar 8-10X higher.

From Leeb.com

For the past 10 years, investors have had almost nowhere to hide – that is, almost no asset that would let them preserve wealth and make a little money over and above inflation.
 
Oh sure, a few stocks have done well – including a number of our recommendations. But stocks in general, bonds, cash, real estate, etc. have been disappointing.
 
The one exception has been gold.  Gold prices have risen each year since 2001.  From its low of around $250 in the late 1990s, an ounce of gold today costs roughly 5X more, and its annualized rate of return since then has averaged 15% - far in excess of the inflation rate.  In fact, no other major asset class has been so rewarding during this period.
 
Moreover, gold has withstood the test of time.  Since it started trading publicly in the early 1970s, its returns have closely matched those of the S&P 500.
 
Traditionally, investors have regarded gold as an inflation hedge.  It certainly served that role in the 1970s.  However, gold is more than just an inflation hedge or a tool for diversification. It’s also a powerful deflation hedge.
 
For example, one way to get an idea of how gold has fared over the long term is to look at the history of Homestake Mining.  This gold company, which is now part of Newmont, began trading in 1879 and was listed on the exchange for more years than any other stock.  During the deflationary period of the Great Depression, from 1929-36, Homestake’s share price went from $65 to $544.
 
Gold also rose 100% during the deflationary period from 1814 to 1830, and its gains over the past 10 years were made under deflationary conditions.
 
In fact, if we look a little deeper, we can see that gold is not really a ‘flation hedge but a hedge against the debasement of currencies, particularly the U.S. dollar.  Gold functions as a currency more than a commodity.  It was used as money for most of history, and it is still the money of last resort when all others fail.
 
Both inflation and deflation can lead to the debasement of currencies, and that’s why gold prices rise during both phenomena.  Gold prices soared in the 1970s as higher oil prices led to a higher cost of living and thus a weaker dollar.  Today, governments around the world are trying to combat deflation and recession by debasing their currencies through liquidity and spending.  So again, weaker currencies mean higher gold prices.  Whatever ‘flation we get, it’s good for gold.
 
With gold prices rising so strongly, many have started wondering if gold is in a bubble – and just how high gold prices can go before they peak.
 
We said last week that gold could take a little breather in the next few weeks.  However, looking at the 5-year horizon, gold appears far from expensive today.  If anything, its upside potential is tremendous.
 
One way to judge whether gold is over- or under-priced would be to look at the ratio between the gold supply and the money supply.  However, nations today have very different ways of measuring money supplies.  (For instance, the U.S. no longer calculates M3, which was a very useful measure in the past.)
 
A more accurate way to evaluate gold today is to look at the ratio between gold prices and the Gross World Product (like GDP, but for the entire planet), before inflation.  This tells us how much gold there is in the world versus the goods produced in the world.  Because gold is one commodity that doesn’t get consumed or destroyed the same way as oil or iron, the price of gold is a good reflection of the total value of its supply.
 
The simple premise here is that the more volatile and iffy the world the greater the need for a shelter. And the larger the ratio of gold should be to underlying economic activity.
 
Since the early 1970s, the ratio of gold:GWP has averaged 0.65. Today, it stands at 0.57, which tells us that gold is actually cheap today, despite its gains over the past decade.
 
So how high would gold prices need to go before they could be considered overvalued? The last time gold peaked was in 1980, when the ratio averaged 1.72.  At the absolute peak in February that year, the ratio was over 2.  Therefore, gold prices would have to more than triple from today’s price before we would consider gold overpriced relative to its past peak. Specifically, we would be looking at a gold price of $4,300 per ounce.
 
However, we actually think gold’s potential is even greater.  In the 1980s, for instance, there were ready answers as to what was wrong with the world and how it could be fixed.  Today, the solutions are not so clear.  We have no Paul Volker-like figure who can assure us that commodity prices will stop rising, that China will stop growing, or that U.S. real income will stop falling.  There are no magic bullets in the chamber, and the cavalry isn’t racing towards us over the horizon.
 
Besides, we calculated that ratio based on today’s GWP.  Over the next five years, growth will rise some 5% annually (remember, this is nominal growth, not real growth).  The price gold must reach to return the ratio to its previous peak will also rise.  Our five-year target for gold prices comes to $5,500 per ounce.
 
Of course, this assumes that the process of currency debasement will be no worse than it was in the 1970s.  In fact, it could be much worse, which would mean the gold:GWP ratio could rise much higher before peaking.
 
The bottom line is that, until we have a basis for low-inflationary economic growth – that is, growth without currency debasement – as we had in the 1990s, gold prices will continue to rise in an accelerating trend.
 
The other question you may have is whether gold or gold stocks will give you the best return.  We lean towards gold stocks as the potentially largest source of investor profits. However, at the same time, we must be careful what we wish for.
 
Since 1972, the ratio of gold stocks to gold has averaged between 0.2 to 0.4.  At the peak in 1974, the ratio reached 0.61.  That’s when gold stocks were worth the most in terms of gold.
 
A high gold stock:gold ratio turns out to be a good sign that gold is in a bubble or at least ready for a big correction. A high ratio (everything else equal) means investors are pricing larger gains in gold than they do on average. In the years that followed 1972, gold prices fell by a third. (Gold stocks also corrected, but not as much.)  And this has been the pattern over history.  The higher the relative strength of gold stocks, the less likely gold prices will rise.
 
On the other hand, when the relative strength of gold stocks falls under 20, as they did in 1979, it bodes very well for investors.  Gold prices spiked to a record high in 1980 that stood for the next two decades.
 
Today, the ratio of gold stocks:gold stands at a very low 0.1474.  Apart from October 2008, this is the lowest level the ratio has ever been at.  It tells us that investors are still pessimistic about where gold prices are headed.  This confirms our opinion that gold is undervalued, and that gold stocks have a very long way to rise.
 
In fact, if gold prices do rise more than 4X over the next five years, as we expect, gold stocks would have to soar 8-10X higher just to reach the historical average.
 
All this tells us that investors ought to be buying gold now and buying aggressively on any dips that arise.  We used to recommend you hold 10-15% of your portfolio in precious metals, but we have no objection if you want to raise that percentage.  The more nations debase their currencies, the more gold will reward you.
 
Even if you just see gold as insurance against potential ‘flations, that insurance is very cheap right now.  What’s more, until the world economy gets a lot healthier, your need for insurance is very high.  So take advantage of the opportunity.

• Texans think big

The Republic of Texas Begins Minting Private One-Ounce Silver Proof Medallions…….

Victoria, TX - June 23, 2010 - As the U.S. federal government increases its pressure on states and individuals working to reclaim rights guaranteed by the U.S. Constitution, the response from the freedom movement varies across the U.S., from the subtle “Tenth Amendment” resolutions to the re-awakening of state militias.  But to the south, the republic of Texas nation has taken a slightly different, yet more pro-active and hands-on approach.

“Everything’s bigger in Texas,” says District 8 senator Robert Wilson, “especially our will to resist tyranny. Remember the Alamo?  We won nationhood by international treaty in 1836 when we soundly defeated Mexico’s president Santa Anna and his armies at the battle of San Jacinto. And since the U.S. Constitution doesn’t grant congress the authority to ‘annex’ another nation by a ‘resolution’, we stand on a solid lawful foundation to enjoy all the rights God granted us, like establishing our own separate economic system.”

While the rest of the country’s economic outlook turns more bleak by the day, the republic of Texas’s elected government implements precautionary measures to weather the storm. “Our three-tiered approach keeps us virtually unaffected by the federal reserve’s inflationary policy: we store our nation’s wealth in Silver, trade Silver with local vendors as often as practical, and help Texians ditch the sinking U.S. dollar by providing a cost-effective method to revert to the republic of Texas national metal currency, modeled from our currency of the 1800’s.”

Wilson, who is on the nation’s Depository Committee, views the strategy as a proportional response to the U.S. federal government’s recent rumblings regarding Americans’ right to own guns and organize local militias. “They don’t want us to have the means to protect ourselves. What are they afraid of? We must protect the Texian people with our independent silver-backed system, immune from their fraudulent and inflationary manipulation.”

The basis for the new Silver currency is established in partnership with the American Open Currency Standard, an organization most well known for the design of a similar economic system built for the Lakota Nation and the Free Lakota Bank.

“We are delighted that the republic of Texas selected the Open Currency standard for their new currency,” says Rob Gray, Executive Director. “This is a major accomplishment for our mission and a huge step in the direction of an honest system of trade not just for Americans, but also for nations across the world.” Gray’s group helps communities mint precious metals for local currencies and barter purposes.

Future plans for the republic include recruiting manufacturers and producers to trade with the government and Texians, as well as the establishment of a metals ‘bank’ to facilitate commerce and create an opportunity for loans and investment. Wilson concludes that more is to come: “The rest of the world is invited to join us in this historic project by purchasing our Silver currency and investing in our first depository. This is just the beginning; we don’t intend to sit on our hands and watch our nation and the U.S. drift into financial slavery.”

• Eric King on the Bank for International Settlements

Secretive and Powerful BIS Annual Report Released
 
The very fabric and the seams of the financial system are coming apart. Who knows what the timetable is for the implosion of the current monetary system? We are witnessing the greatest wealth transfer in history, and the horrors of the aftermath of this tragedy will not be forgotten for decades.  Keep in mind that the stark warnings from today’s annual BIS (Bank for International Settlements) report are the very reason why it is so important for all readers globally to protect themselves and their families by owning gold.
June 28, 2010
      
This was from the annual report released today by the very secretive and extremely powerful BIS: “Three years after the onset of the crisis, expectations for recovery and reform are high but patience is wearing thin. Policymakers face a daunting legacy: the side effects of the ongoing financial and macroeconomic support measures, combined with the unresolved vulnerabilities of the financial sector, threaten to short-circuit the recovery; and the full suite of reforms necessary to improve the resilience of the financial system has yet to be completed.”
 

The BIS release continues: “When the transatlantic financial crisis began nearly three years ago, policymakers responded with emergency room treatment and strong medicine: large doses of direct support to the financial system, low interest rates, vastly expanded central bank balance sheets and massive fiscal stimulus. But such powerful measures have strong side effects, and their dangers are beginning to become apparent.”

“Here are the worst problems arising now from the continued use of the extraordinary programmes: Direct support is delaying vital post-crisis adjustment and runs the risk of creating zombie financial and non-financial
firms. Low interest rates at the centre of the global economy are discouraging needed reductions in leverage, thereby adding to the distortions in the financial system and creating problems elsewhere.”

“The sustained bloat in their balance sheets means that central banks still dominate some segments of financial markets, thereby distorting the pricing of some important bonds and loans, discouraging necessary market-making by private individuals and institutions, and increasing moral hazard by making it clear that there is a
buyer of last resort for some instruments. And the fiscal stimulus is spawning high and growing government debt that, in a number of countries, is now clearly on an unsustainable path.”

The first section of the BIS report concludes: “The financial disruptions in the first half of 2010 have brought the fragility of the industrial world’s financial system into stark relief: a shock of virtually any size risks a replay of the events we saw in late 2008 and early 2009. The sovereign debt crisis in Greece is clearly jeopardising Europe’s nascent recovery from the deep recession brought on by the earlier crisis.”

“Unlike then, however, we have hardly any room for manoeuvre. Policy rates are already at zero and central bank balance sheets are bloated. Although private sector debt has started to decline, public debt has taken its place, with sovereign fiscal positions already on an unsustainable path in a number of countries. In short, macro-economic policy is in a vastly worse position than it was three years ago, with little capacity to combat a new crisis – it will be difficult to find a source of further treatment should another emergency arise. Regaining the ability to react to economic and financial crises, by putting policies onto sustainable paths, is therefore a priority for macroeconomic policy.”

Notice the BIS report describes zombie banks and even zombie non-financial firms. They also describe the “high and growing government debt” as clearly unsustainable. They then go on to note the fragility of the financial system and the fact that another shock would be extraordinarily dangerous to the system because central banks are losing the ability to maneuver as interest rates are low and “central banks balance sheets are bloated.”

Gold is often referred to as an insurance policy, and it is one insurance policy you cannot be without when the financial system ultimately implodes. You must own gold to be on the right side of the greatest wealth transfer in history.

Eric King
KingWorldNews.com

Fractional Gold and Silver Accounts

Darryl Schoon discusses how the explosive credit growth from 1982 to 2008 resulted in a “crack up boom” and then the flight into real values - i.e. gold -  began in 2001.  He warns of the eventual complete breakdown of the monetary system, however he also warns of the likely existence of fractional gold and silver accounts…

FRACTIONAL GOLD AND SILVER ACCOUNTS
Deceit becomes fraud only when you can’t deliver

Many of those interested in Austrian economics have been waiting for what Austrian economist Ludwig von Mises called the crack up boom. My advice: Don’t wait. The crack-up boom may already have happened. Get ready for what’s next.

From Ludwig von Mises, Human Action, 1949:
The credit expansion boom is built on the sands of banknotes and deposits. It must collapse. If the credit expansion is not stopped in time, the boom turns into the crack-up boom [bold, mine]; the flight into real values begins, and the whole monetary system founders. Continuous inflation (credit expansion) must finally end in the crack-up boom and the complete breakdown of the currency system.

The period from 1982-2000/2008 was capitalism’s longest sustained expansion. It was an expansion, however, driven by ever–increasing amounts of credit emanating from Wall Street and central banks. Capitalism’s longest and greatest expansion was, in fact, a credit bubble in disguise.

  

The historic and extraordinary credit expansion boom faltered in March 2000 when the US dot.com bubble collapsed. More cheap credit from Greenspan’s Fed then reflated the bubble, driving markets to new highs only to again collapse in 2008, a cataclysmic rendering resulting in global losses exceeding $10 trillion.

The explosive growth of credit from 1982 to 2008 was credit-based capitalism’s final blow-off, the late-stage credit expansion predicted by von Mises in 1949; the resultant and parabolic rise in equities from 1997-2000 a sign that von Mises’ crack-up boom was underway.

That the crack-up boom has already happened is further evidenced by von Mises’ flight into real values which began in 2001, a consequence of the crack up boom. The flight into real values started after the dot.com bubble collapsed and investors began moving to the safety of gold (the price of gold has since quintupled); and, when markets collapsed again in 2008, the flight to real values, i.e. gold, accelerated.

The Financial Times reported in September 2008:
Investors in gold are demanding “unprecedented” amounts of bullion bars and coins and moving them into their own vaults as fears about the health of the global financial system deepen..Industry executives and bankers at the London Bullion Market Association annual meeting said the extent of the move into physical gold was unseen and driven by the very rich.

Regarding the consequences of the crack up boom, von Mises wrote:
…As in every case of the understanding of future developments, it is possible that the speculators may err, that the inflationary or deflationary movement will be stopped or slowed down, and that prices will differ from what they expected.

Speculative uncertainties caused by previously latent but now unleashed inflationary and deflationary forces are now clearly evident. A deflationary collapse in demand is again in motion which monetary authorities may attempt to offset by a hyperinflationary deluge of printed money.

The belief that the trillions borrowed and spent in 2009 reversed the 2008 economic collapse is belied by the fact that demand is again falling. Much to central bankers’ collective dismay, the global economy is contracting.

The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era…The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7857595/RBS-tells-clients-to-prepare-for-monster-money-printing-by-the-Federal-Reserve.html

Faced with a potential deflationary collapse, RBS credit chief Andrew Roberts is predicting that central banks will attempt to prevent this possibility by a massive round of money printing: The next shock and awe will be in the form of large scale QME (Quantitative Monetary Easing).

Sufficient, i.e. excessive, money printing is Milton Friedman’s ineffectual solution to reversing monetary contractions. Printing more money leads, in fact, to von Mises’ predicted end-game. Von Mises crack up boom ends in the complete breakdown of the currency system, a progression that Friedman’s flawed theory has accelerated.

GOLD & THE COMPLETE BREAKDOWN OF THE CURRENCY SYSTEM

Predictions are circulating that the euro, only ten years old, may not survive the current crisis. The euro, however, like all fiat currencies was doomed from its beginning. No fiat currency has ever lasted as the advantages of fiat currencies are only temporary. In the long run, there are none.

In the not too distant future, paper currencies, e.g. the US dollar, the pound, the euro, the yuan, et. al. will go the way of all fiat money, into history’s dustbin, surviving only as monetary artifacts, evidence once again of man’s continual attempts to substitute fiat paper money with no intrinsic value for that which does.

Ralph T. Foster’s book, FIAT PAPER MONEY, The History and Evolution of our Currency, is a compendium of humanity’s repeated attempts to achieve and maintain the impossible. Since the invention of ink and paper in the East and now in the West, Foster’s book chronicles man’s constant attempts to pass off paper coupons as money, see http://home.pacbell.net/tfdf/.

FIAT PAPER MONEY is a disquieting read. It is a collection of facts that leaves an impression difficult to forget. Therein lies the value of the book. My interview with Ralph T. Foster about FIAT PAPER MONEY can be viewed below:

Von Mises’ complete breakdown of the currency system leaves gold and silver among the few safe havens remaining. Erste Bank’s excellent report, In Gold We Trust (June 2010) by analyst Ronald Stoferle, is perhaps the best summary to date of the reasons for gold’s 10 year rise—a rise that Stoferle predicts will continue. Note: Stoferle adds an Austrian economic perspective to his analysis of gold’s future prospects, see this link.   

THE SAFETY OF GOLD VERSUS THE ALLEGED SAFETY OF BULLION BANKS

On June 25, 2010, an article in the Wall Street Journal noted: Individual investors are increasingly demanding to take possession of their gold holdings, rather than just owning shares in a mining company or a gold-related fund.

What the Wall Street Journal failed to report is the possibility that many gold investors may not, in fact, actually have the gold or silver they purchased and believe to be safely stored in a bank vault.
Gold and silver investors are discovering that banks possess only a small fraction of the gold and silver allegedly bought by banks for customers.

Banks, unknown to their customers, use a fractional reserve system for their accounting of gold and silver inventories. Only a small percentage of gold and silver bought by customers is actually held and stored by banks.

Banks for years have been charging their customers for precious metal purchases without actually buying the metals, booking the precious metal “purchases” as bank liabilities, not as the custodial accounts customers assumed, see http://www.reuters.com/article/idUSN1228014520070612 .
 
The following interview with investors who believed their bank was storing silver on their account is revealing as it is disturbing. Although charged by the bank for the purchase of silver bullion in addition to storage and insurance fees, the bank did not actually have the silver as the investors discovered, see http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/4/7_Andrew_Maguire_%26_Adrian_Douglas.html

Their discovery is no different than the facts uncovered when Morgan Stanley was successfully sued in a class action suit  brought by Selwyn Silberblatt in 2007, on behalf of himself and others who bought precious metals — gold, silver, platinum and palladium in bullion bar or coins — from Morgan Stanley DW Inc. and its predecessors and paid fees for their storage. The suit covered investors who did so between Feb. 19, 1986, and Jan. 10, 2007, see http://www.reuters.com/article/idUSN1228014520070612 .

Question: Do you know where your gold or silver is?

Fool me once, shame on you.
Fool me twice, shame on me.

You’ve been warned.

Buy gold, buy silver, have faith.

Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
Blog www.posdev.net/pdn/index.php?option=com_myblog&blogger=drs&Itemid=81

An NZ Video Guide to Investing in Silver: Part 1

Silver: A Tightly Coiled Spring

Here’s the first video in our new ”Gold and Silver Videos”  category. 

In this video Gold Survival Guides resident intellectual “Wild Bill” (who also writes our “Weekly Wanderings” column every week) talks about:

• Silver’s characteristics - its similarities but also its differences from gold
• The silver paper market versus the silver physical market
• How silver may perform under an inflationary environment versus a deflationary environment
• The supply and demand characteristics of silver
• Discusses the volatility of silver and how this is an advantage if used correctly
• And the alternatives for investing in Silver in New Zealand.

Video Part 2 to come in a week or so where “Wild Bill” will be looking at some Silver charts in more detail… Post a comment below and let us know what other topics you’d like us to cover in these videos…

Whither the NZ Dollar Gold Price?

Gold has just made another all time high priced in US dollars reaching an intra-day price of $1261.90.  In Euros and sterling and many other currencies it also has hit new highs recently.

Here in New Zealand, while it has rallied sharply since the start of May, the previous February 2009 high of $1980 has yet to be breached as can be seen further down the page on the 2 year chart of the New Zealand Dollar Gold Price.  In early June it touched $1900 briefly but has since fallen away sharply.

The mistake many new gold investors make is trying to guess where the price is going.  They either sit on the sidelines waiting for the price to get cheaper while it rises and rises, or they jump in when the gold is hitting mainstream headlines as it makes new highs, only to subsequently see it fall steeply.  Often they make their initial purchase in one big hit hoping to pick the “bottom” and then see their purchase lose 10 or 15% in no time. 

We prefer not to guess where the price is going and rather buy at regular intervals, ensuring a good price overall. 

However we also like to keep some “powder dry” for when the price dips, and this is when it is useful to keep an eye on the charts to pick buying zones where you can grab some bigger handfuls.

Technical analysis is as much an art as a science. You could ask 5 or 6 technical gurus about a chart and probably get 5 or 6 different answers!  And particularly in these days of manipulated markets it is of dubious value. 

However, technical analysis does have some predictive value, chiefly because so many people use it, so it’s worth taking into account when making purchase decisions in our opinion. 

The 1 year chart below has Fibonacci retracement levels drawn in from the recent high at $1900 back down to 0% at $1372 last October.  You can see $1700 at the 61.8% retracement and $1637 at the 50% level.

 1 Year NZ Dollar Gold Price Chart with Fibonacci Retracements

Also worth taking into account is the 50 day moving average (red line) of $1723.  Further below is the 200 day moving average at $1581.  You can see on the 1 year chart that the price has not dipped down to touch the 200 day moving average (red line) since the start of the year.

These price levels all offer good “support” in technical terms, so in our opinion, could likely be good buying zones. 

2 Year NZ Dollar Gold Price Chart - Cup and Handle Pattern

 

The 2 year chart above has a very interesting look about it, namely, in chartist terms, what is referred to  as a “cup and handle”.  You can see the cup highlighted in green.  This is known as a “bullish continuation pattern” and while it is usually seen over a period of months rather than a year and a half it is worth looking at more closely.  For a full description of the cup and handle pattern, see http://stockcharts.com/help/doku.php?id=chart_school:chart_analysis:chart_patterns:cup_with_handle_cont

The handle usually trends down for a short period before eventually heading up and breaking out and recording new highs. 

So from here we could see the price head up to test $1980 and with then possibly a “handle” forming, or maybe we are already witnessing the formation of a handle.  If this break out were to occur we can make an estimate of an upside target by taking the difference between the bottom of the “cup” at $1400 and the high of approxiamately $1950.  Adding the difference of $550 to the current high gives an upside target of $2500.

Of course a “double top” may occur where the price rises to test the $1980 resistance but fails to break through this level and we might then see the NZD gold price fall significantly.  However unlike the February 2009 high, we haven’t seen a sharp rise in the space of a few months but rather a series of sideways movements followed by some steady gains.  So you could say we are at a lower risk of a significant breakdown in price than we were in February 2009.

As always, these are just our opinions.  The charts clearly demonstrate that the gold market is a very volatile market, however, this makes for opportunities, so long as you have a plan to handle this volatility.  A plan which could be as simple as buy the dips and keep buying until your big picture view of the global financial landscape hints at some real improvement, which we haven’t seen a lot of as yet, and which looks increasingly unlikely, given the current economic and financial situation.

Note: Both live and historical gold and silver price charts in New Zealand dollars are available here: Gold Prices

Compelling Reasons to Buy Silver

Wild Bills Weekly Wanderings 22 June 2010

This week, in our wanderings, we have come across the following items.

• Gerald Celente looks ahead.
• Ambrose embraces gold’s currency role.
• The Compelling Case for Silver?

 

Will We See Another May 6th Flash Crash for Stocks?

Watch Gerald Celente’s comments on the day that the Dow Jones plunged almost 1,000 points on May 6th. 

Gerald Celente heads up the Trends Research Institute, one of the top forecasting groups in the world today.  As Peter Cooper says in his blog…

“It is astonishing to find Russia Today as a bastion of free speech, albeit directed in a contrarian fashion.”

Gold rallied on this big fall. Could it happen again? Well, we have not had an convincing reason for why it happened on May 6th, except the most obvious conclusion is that a lot of people decided to sell at the same time.

Celente is 80 per cent in gold and hedged in currencies.

 

Mainstreamer Ambrose Evans-Pritchard on Gold

Evans-Pritchard is a respected financial columnist for the UK Daily Telegraph. In this piece, he looks at the severe underlying problems ahead for both the US and the Eurozone, suggesting that, once again, as throughout history, gold is resuming its mantle as the real reserve currency of the world.

Gold reclaims its currency status as the global system unravels

We already know that the eurozone money markets seized up violently in early May as incipient bank runs spread from Greece to Portugal and Spain, threatening the first big sovereign default of our era.

Jean-ClaudeTrichet, the president of the European Central Bank (EC), talked days later of “the most difficult situation since the Second World War, and perhaps the First”.

The ECB’s latest monthly bulletin gives us some startling details. It reveals that the bank’s “systemic risk indicator” surged suddenly to an all-time high on May 7 as measured by EURIBOR derivatives and stress in the EONIA swaps market, exceeding the strains at the height of the Lehman Brothers crisis in September 2008. “The probability of a simultaneous default of two or more euro-area large and complex banking groups rose sharply,” it said.

This is a unsettling admission. Which two “large and complex banking groups” were on the brink of collapse? We may find out in late July when the stress test results are published, a move described by Deutsche Bank chief Josef Ackermann as “very, very dangerous”.

And are we any safer now that the EU has failed to restore full confidence with its €750bn (£505bn) “shock and awe” shield, that is to say after throwing everything it can credibly muster under the political constraints of monetary union? This is the deep angst that lies behind last week’s surge in gold to an all-time high of $1,258 an ounce.

The World Gold Council said on Friday that the central banks of Russia, the Philippines, Kazakhstan and Venezuela have been buying gold, and Saudi Arabia’s monetary authority has “restated” its reserves upwards from 143m to 323m tonnes. If there is any theme to the bullion rush, it is fear that the global currency system is unravelling. Or, put another way, gold itself is reclaiming its historic role as the ultimate safe haven and benchmark currency.

It is certainly not inflation as such that is worrying big investors, though inflation may be the default response before this is all over. Core CPI in the US has fallen to the lowest level since the mid-1960s. Unlike the blow-off gold spike of the Nixon-Carter era, this rally has echoes of the 1930s. It is a harbinger of deflation stress.

Capital Economics calculates that the M3 money supply in the US has been contracting over the past three months at an annual rate of 7.6pc. The yield on two-year Treasury notes is 0.71pc. This is an economy in the grip of debt destruction.

Albert Edwards from Societe Generale says the Atlantic region is one accident away from outright deflation - that 9th Circle of Hell, “abandon all hope, ye who enter”. Such an accident may be coming. The ECRI leading indicator for the US economy has fallen at the most precipitous rate for half a century, dropping to a 45-week low. The latest reading is -5.70, the level it reached in late-2007 just as Wall Street began to roll over and then crash. Neither the Fed nor the US Treasury were then aware that the US economy was already in recession. The official growth models were wildly wrong.

David Rosenberg from Gluskin Sheff said analysts are once again “asleep at the wheel” as the Baltic Dry Index measuring freight rate for bulk goods breaks down after a classic triple top. The recovery in US railroad car loadings appears to have stalled, with volume still down 10.5pc from June 2008.

The National Association of Home Builders’ index of “future sales” fell in May to the lowest since the depths of slump in early 2009. RealtyTrac said home repossessions have reached a fresh record. A further 323,000 families were hit with foreclosure notices last month. “We’re nowhere near out of the woods,” said the firm.

It is an academic question whether the US slips into a double-dip recession, or merely grinds along for the next 12 months in a “growth slump”. For Europe, nothing short of a sustained global boom can lift the eurozone out of the deflationary quicksand already swallowing up the South.

Spain had to pay a near-record spread of 220 basis points over German Bunds last week to clear away an auction of 10-year bonds, roughly what Greece was paying in March. Leaked transcripts of a closed-door briefing to the Cortes by a central bank official revealed that Spanish companies have been shut out of the capital markets since Easter. Given that the Spanish state, juntas, banks and firms have together built up foreign debts of €1.5 trillion, or 147pc of GDP, and must roll over €600bn of these debts this year, this is a crisis unlikely to cure itself.

By their actions, investors show that they do believe the EU can be relied upon to back its rescue rhetoric with hard money, and for good reason. Germany’s coalition risks breaking up at any moment, fatally damaged by popular fury over the Greek bail-out. Far-Right populist Geert Wilders is suddenly the second force in the Dutch parliament. Flemish separatists have just won the Belgian elections in Flanders. The likelihood that an ever-reduced group of German-bloc creditors facing disorder and budget cuts at home will keep footing the bill for an ever-widening group of Latin-bloc debtors in distress is diminishing by the day.

Fitch Ratings said it will take “hundreds of billions” of bond purchases by the ECB to stop the crisis escalating. Since Bundesbank chief Axel Weber has already deemed the first tranche of purchases to be a “threat to stability”, it is a safe bet that Germany will fight tooth and nail to prevent such a move to full-blown quantitative easing. The blood-letting along the fault-line between Teutonic and Latin Europe will go on, as the crisis festers.

Yet the markets are already moving on, in any case. They doubt whether the EU’s strategy of imposing of wage cuts on half of Europe without offsetting monetary and exchange stimulus can work. Such a policy crushes tax revenues and risks tipping states into a debt-deflation spiral, as if everybody had forgotten the lesson of the 1930s.

Greece’s public debt will rise from 120pc to 150pc of GDP under the IMF-EU plan. There is a futile cruelty to this. As Russia’s finance minister Alexei Kudrin acknowledges, a Greek “mini-default” has become inevitable.

EU president Herman Van Rompuy confessed that the EMU lured countries into a fatal trap. “It was like some kind of sleeping pill, some kind of drug. We weren’t aware of the underlying problems,” he said.

What he has yet to admit is that the North-South imbalances built up since the euro was launched - indeed, because the euro was launched - cannot be corrected by further loans from the North or by pushing the South in depression. The political fuse will run out before this reactionary and self-defeating policy is tested to destruction.

Compelling Reasons to Buy Silver

The commentary below was posted by Peter Cooper of arabianmoney.net.

 ArabianMoney accepts all the excellent reasons for buying silver in this nice video. But the danger of another big silver price correction as in the 2008-9 financial crash is too great to buy right now.

We reckon another big crash is coming soon and that will be the ideal point to buy silver at a discount to current prices. Silver may not fall by as much as 2008-9. We hope not: 50 per cent was a very big price swing for holders of this metal. But buying on the dips is going to be a winning strategy going forward into an era of debt monetization and inflation.

Silver has been money since before Roman times and will not only keep its value but has the potential to be the best investment of all time.

Please watch this video!

Here at Gold Survival Guide, we have our own views on silver….

We think it is so important that we are are preparing a special item for inclusion on the site. STAY TUNED!

The 2010 Silver Buying Guide

Silver has been much more prominent of late.  Today Casey Research cover 4 reasons why you should think about owning silver along with 2 drawbacks to consider as well.  Plus 4 options for storage and also if now is a good to time to be buying…

By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

Silver has been sizzling and causing lots of buzz in the industry. Investors are excited.
Part of the hubbub is due to its current run. Since its February 8 low, silver has roared ahead 22.4% (through June 21) and has doubled from its November 2008 low.

This excitement has spilled over into greater investment demand – especially so for coins. The U.S. Mint sold more Silver Eagles in the first quarter of this year – just over nine million – than any prior quarter in its history. The Royal Canadian Mint produced 9.7 million silver maple leafs in 2009, also a record.

Take a look at the jump in U.S. Mint coin sales since 2007.
 

 

Silver bullion ETFs are growing, too, experiencing a five-fold increase in metal holdings since 2006.

There’s plenty we could talk about with silver, but our goal is to make money. So let’s focus on answering just two questions: Is today’s price expensive or cheap? And, what are the best silver coins, ETFs, and stocks to own? 

We have all the answers straight ahead, including lots of actionable info, so let’s jump right in…

Why Should I Buy Silver?

There are several reasons to own silver in addition to gold.

First, it’s cheaper! Known as the poor man’s gold, those with limited budgets will find it easier to purchase. You might hesitate plunking down $1,200 for an ounce of gold, but you can pick up 32 ounces of silver for half that amount.

Second, silver has wide industrial use and this component can help or hinder its price. As its consumption increases across a growing number of industries, this should help place a floor under demand. And because of its unique properties, new uses continue to be discovered.

Third, silver is money and has served this role more than any other material on earth, save gold. Due to its historical role, silver will always have monetary value and offer similar protection as gold to the ongoing global currency devaluations, and will definitely benefit from the inflation hurricane we see as inevitable.

Silver is more practical as a currency used for everyday purchases. When the time comes, you can sell the requisite number of silver coins to cover a specific need, as opposed to being forced to liquidate a high-dollar-value gold holding. Silver is perfect when smaller amounts of cash are required.

Fourth and last, silver could possibly outperform gold before this bull market is over. The market capitalization of silver (and silver stocks) is much smaller, making its price more susceptible to demand spikes than gold.

In the latter part of the 1970s precious metals bull market, gold gained over 700% – but silver soared over 1,400%. If you’ve got a bit of Gordon Gekko in you, we recommend investing a portion of your dollars in silver.

Caution - Hot!

Like all things, silver has its drawbacks, two in particular.

First, the price is volatile. Over the past 12 months, silver has seen gains of 53.8% and 22.9% and drops of 21.9% and 19.6%, all within a period of months or even weeks.

If you’re going to own silver, you must be prepared for big price gyrations. The best way to do that: buy it and forget about it. And…

►Make price volatility your friend. Big price swings present the opportunity to snag silver at a big discount. We give some guidance on prices below.

Second is the storage issue. As your pile grows, the advantage to storing gold will become self-evident. At $1,200 gold and $18.50 silver, $10,000 will get you eight gold eagles that will fit nicely in the credit card slots of your wallet; however, it will buy 540 silver eagles, weigh nearly 34 pounds, and fill a small bank safe deposit box.

►How to store physical silver. There are several ways to solve the storage dilemma, even if you plan to buy like the Hunt brothers.

1. Spread your holdings around. Not only is it wise to avoid keeping all your physical silver in one place, diversifying your storage arrangements allows you to buy more. Hide some at home in several locations (no cookie jars, though), and obviously tell only one trusted person. Store some in a bank safe deposit box and use more than one bank as your holdings grow.
2. Buy bars. Silver bars take up less space than a pile of coins of the same weight. We wouldn’t start out with nor have all our holdings in bars, because you want the advantage coins offer. But the larger your holdings, the easier it will be to store some of it in bar form.
3. Use pool accounts and unallocated storage. With a pool or unallocated account, you’re essentially getting free storage no matter how big your stash. That’s hard to beat. You’ll pay fabrication and delivery charges if/when you convert your holdings and take delivery, but in the meantime, you save on storage costs. Great value for the large holder.
4. Private storage. Store your silver with a private vaulting company. The advantage is that it’s outside the banking system; the disadvantage is that it’s usually expensive, though it can be cost effective for large holdings. Do your own due diligence if you go this route because we can’t vouch for any facility, but you could start by checking out delawaredepository.com. Keep in mind that using a vaulting facility beyond a reasonable driving distance will mean added shipping/insurance costs and restrict quick access.

Is Now a Good Time to Buy?

With the gains we’ve seen in silver, would we buy right now?

Let’s first look at the big picture. The following chart shows how far silver is below its inflation-adjusted peak reached in 1980.

 

Another clue some investors watch is the gold/silver ratio (gold price divided by silver price) shown below.
 

 

Since our current bull market in precious metals began in 2001, the ratio, while fluctuating wildly, has never gone below 45. And yet look where it went during the precious metals peak in 1980: it bottomed at 17. Even though gold was soaring at the time, silver outran it.

The ratio might show relative strength between gold and silver, but it’s not a good buying indicator. A falling ratio could mean silver is rising faster than gold, like it is currently, or it could mean silver is falling slower. As a result, we’d use the ratio to determine silver’s upside potential but not necessarily when to place an order.

These big-picture signals tell us silver is undervalued and, at the moment, a better bargain than gold. And given the currency crisis we’re convinced is in the cards, we wouldn’t want to be caught without any. If you have a long-term mindset, silver is a buy today.

Would we wait for a better price?

If you do not own any, and plan on holding what you buy until a mania develops, then we wouldn’t wait. The risk of buying silver at current prices is lower than owning none at all.

If you do own some but want to add to your holdings, we’d probably wait for a drop in price, in part because silver could more easily fall when the economy is found to be more fragile than what many believe. And with industrial uses comprising approximately half of silver’s demand, it would be more susceptible to sell-offs than gold if our research is correct about global economies. 

Further, summer usually brings pullbacks in prices, and this can be especially true for silver stocks. This is the tendency, though we can’t be sure if this summer will follow past trends. Still, our best guess is to anticipate another leg down this year. If you already own silver, we’d look for a correction to add to your holdings.

In our opinion, owning no silver in this bull market would be a mistake. And your first (and biggest) investment in silver should be in a physical form.

How much physical silver should you have? There’s no right answer and one size will not fit all. But we do recommend holding more gold than silver. Our suggestion for your precious metal holdings is roughly 80% gold and 20% silver.

Like gold, silver comes in different forms. We’d start with the more popular one-ounce coins and then branch out into other types as your holdings grow.

—-
[The above is an excerpt from the May issue of Casey’s Gold and Resource Report. Find out our top recommended dealers, including special pricing, along with Jeff Clark’s picks for the “best silver ETF” and the “two best silver stocks in the world.” And our June issue is our annual Summer Buying Guide. You can check it all out risk-free, for just $39/year, with a 3-month, 100% money-back guarantee. Get it right here.]

Reasons to Own Gold, Oil Volcano? & Meltup Encore

Wild Bill’s Weekly Wanderings 15 June 2010

This week, in our musings, we consider the following issues.

•  BP undersea oil volcano?
•  National Inflation Association Follow-Up.
•  John Embry lays out the case for Gold.

Overshadowing the US, and indeed the world at this time, is the terrible disaster unfolding in the Gulf of Mexico. We include a commentary this week from Rick Ackerman, respected market technician, trader and commentator, on this issue. I also discovered, while reading David Kaiser’s blog, that, in Canada (in contrast to the US), oil companies are required by law to drill a relief well right along with the original well. According to Paul Craig Roberts, whom we have featured in these pages before, safety in the Gulf has been severely compromised, due to very heavy lobbying by Big Oil – aided and abetted by Dick Cheney – which has resulted in Congress essentially being bribed to turn a blind eye as so-called “deregulation” of the offshore drilling industry has taken place.

As ye sow, so shall ye reap, indeed.

Has BP Summoned the Fires of Hell?

BY RICK ACKERMAN ON JUNE 14, 2010 12:01 AM GMT

We’ve railed at traders and speculators recently for their arrogant and sometimes breathtaking stupidity in failing to discount an onslaught of world-shattering news. If the dolts, rubes, bozos and mountebanks who have kept stocks afloat even remotely understood what has been going on in this world, we wrote here recently, the Dow Industrials would plummet 6000 points in mere days.  And the news has been grave, indeed.  America’s wholly imagined economic recovery died for good on Friday with the release of shocking retail figures for May. Household incomes have been falling, consumer credit imploding, M3 plummeting, and now it turns out that corporations have allowed $1.8 trillion to sit idle in low-yielding bank accounts, hastening the economy’s deflationary collapse and the onset of a Second Great Depression. We face the impossible task of getting out from beneath $130 Trillion of debt and liabilities amassed by government at all levels. The nation is adrift under a weak president whose radical politics have sharply divided the voters. Iran and Turkey (a NATO member!) have declared war on Israel, sending warships to run the Gaza blockade. Europe’s financial house of cards is within months, or even weeks, of total collapse.  The jihadists may be turning the tide against U.S. and British forces in Afghanistan.
 
Unfortunately the list does not end there. For in fact, there is one crisis that greatly overshadows all of them:  the seabed irruption in the Gulf of Mexico. We won’t even pretend any longer that there is a market “angle” to this story.  In fact, the markets are a sideshow, and politics a droll burlesque, in comparison to the geophysical dreadnought taking shape in the Gulf.  Because it could eventually threaten all life on this planet, there may be no “investable issues” here.

Seabed Fissures

The problem is no longer a leak or a spill, you see, but a volcanic gusher – one that appears to be defeating the efforts of the most capable petroleum engineers in the world. More and more, it is looking like a sci-fi disaster film with no hero and an unhappy ending. Even our supposed best hope for containing the gusher – a second well that would intersect and plug the leak by sometime in August – may be doomed to failure, since the well casing itself may be too damaged to seal off. But the scariest story currently making the rounds is that there are fissures springing up all over the seabed, and that if the weak bedrock that holds the oil gives way, it will release a quantity of hydrocarbons greater in volume than the Gulf itself.
Whenever we’ve tried to predict the “black swan” event that might eventually send the U.S. and global economies into deepest coma, we believed in our heart that, no matter what happened, everything would turn out all right.  The real estate market might collapse, taking our standard of living with it, but Americans would somehow get through hard times together and emerge better and stronger for it.  Even the prospect of a nuclear conflagration in the Middle East implied a beginning and an end — a radioactive half-life, as it were.

Human Error

Who could have imagined that there was an even bigger disaster lurking — or that mere human error could trigger a cataclysm of seismological proportions?  Or will it be of Biblical proportions, with rivers and seas turned into wormwood?   Has BP tapped, not an oil well, but a hole into volcanic Hell?  While these questions are almost too frightening to contemplate, the answers may be staring us in the face within months or even weeks.  For the moment, though, it has become difficult to sort out fact from fiction.  Are clean-up workers getting sick from toxic hydrogen sulfide fumes? Is the Obama administration covering up the true magnitude of the crisis to avoid a panic?  Why are nearly all of the satellite photos of the spill on the Web a month old?  Can BP really handle a crisis whose costs may soon mount into the trillions?  Is the problem even solvable?

And from David Keiser’s blog…

It was only last Tuesday, and quite by accident, that I stumbled on the real tragedy of the oil spill. I was on my weekly Tuesday night bike ride, which includes a guy who actually maintains oil storage tanks for a living. He and others in the know confirmed that a relief well, which will take months to drill, is the only real safeguard against a blowout and a massive leak like this one. And in Canada, I discovered–get this–oil companies have to drill a relief well right along with the original well. Why doesn’t the President propose such a law for any new drilling in the future–and demand that current offshore wells start working on relief wells now, too? They could pay for it themselves–worthwhile insurance against the next environmental disaster–and it would have a job-creation effect. If ever the American people were willing to spend more to protect the environment, now is the time.

National Inflation Association Follow-Up

Here is the latest (short – 7 mins) video from the National Inflation Association (NIA) in the US. It is an update of events that have taken place in the past month since the release of their acclaimed video documentary “Meltup”, and it speaks for itself…

John Embry lays out the case for Gold

Last but not least, we turn to John Embry, of Sprott Asset Management, featured in Eric King’s blog.

John Embry’s latest piece entitled “Reasons To Own Gold” is nothing short of outstanding.

From his piece: “The U.S. dollar is the world’s reserve currency and thus anchors the world’s monetary system. Unfortunately, by virtually any measurement we look at, the United States is beyond the point of no return with respect to its financial position”.

John goes on to say: “Imbedded federal government debt of nearly $13 trillion, unfunded future liabilities in Medicare, Social Security, etc. well in excess of $50 trillion, and a current budget deficit of over 10% of GDP virtually ensures ongoing massive monetary debasement. When the near bankruptcy of the majority of the fifty states in the union is factored in, the situation looks even more dire”.

John goes on to warn about the possibility of hyperinflation: “To combat the massive deficits that inevitably resulted, widespread quantitative easing was undertaken. That policy is here to stay and the fiscal deficits in many countries have now reached percentages of GDP that have almost always resulted in  eventual currency collapse”.

He also warns about paper gold investments: “Investors should also have strong reservations about gold ETFs, gold pooled accounts and gold certificates where the gold is unallocated and thus not specifically accounted for”.

Regarding central bank price suppression: “The western central banks, who have supplied massive quantities of gold to the market over the past fifteen years, both to meet burgeoning demand and to suppress the price, are running dangerously short”.

Credit given to GATA: “The work of the Gold Anti-Trust Action Committee (GATA), which has been remarkably accurate over the past ten years, is finally receiving belated acknowledgment following years of being studiously ignored. The extent of the suppression has been so great that it virtually guarantees a far greater upward explosion in the gold price than would otherwise have occurred”.

John puts things in perspective: “All the gold mined since the beginning of time is worth less than $6 trillion currently and the total capitalization of all the world’s gold stocks barely exceeds that of Walmart. This pales in comparison to the amount of paper money that could seek refuge in the world’s eternal money…I expect gold to trade at several multiples of the current price before this bull market breathes its last breath”.

To read the entire piece by John Embry CLICK HERE

Egon von Greyerz: Gold $5000-$10000?

This week in our musings, we report on some thoughts of others that we have found interesting (emphasis added throughout is ours….

• Eric King tells it like it is…

• Chris Martenson opines…

• Egon evaluates…  $5,000 - $10,000 gold?

Eric King, straight-talking as usual  (from King World News)

Mainstream Media Still Against Gold

June 7, 2010

As Bill Fleckenstein pointed out in his interview on King World News, the same people who were unable to recognize a bubble in real estate or stocks are now warning that there is a bubble in gold. I want for you all to learn to embrace this ignorant skepticism from the media because it is the best friend of a bull market and indeed gold is in a bull market.
 
Interestingly enough the bullion banks are now record short gold as Ted Butler noted in his interview (again on King World News) this last weekend. So we have a parade of people now calling gold a bubble and banks record short.

History would indicate this is about the time that the bullion banks will smash gold and pick the pockets of the large and small speculators as the price plunges. For readers, yes this may happen, but I would also remind readers that Jim Sinclair has pointed out in past interviews (on KWN) that these bullion bank traders have an arrogance about them. They believe “They are the market.”

As Mr. Sinclair has also pointed out, the traditional COT loses when these arrogant traders are up against a country. Well, it seems that countries are not only buying, but well heeled investors from all over the world, particularly the EU are also buying and this at a time when central banks are no longer net sellers.
Where does the gold come from to satisfy the insatiable demand now that the central banks are no longer willing to sell? I do not know and quite frankly don’t care. What is of more interest to me is the question of whether the bullion banks going to be able to smash gold or not, or will they have to retreat towards $1,400 to $1,500?

This is fascinating to watch but very dangerous to trade, so unless you are a seasoned professional stay out of the futures market or any type of leverage and simply purchase gold for delivery. Continue to accumulate gold on all pullbacks and dollar cost average into that weakness because we are in phase II prior to the mania.
 
Gold is your insurance and will rescue you when there is a monetary reset such as the one Felix Zulauf described in his recent interview on KWN (that I discussed in the last Weekly Wanderings Felix Zulauf on Inflation vs Deflation: Ed).

Here is a link to a piece that Steve Saville sent to us and it is an outstanding read. It deals with two recent articles in Barron’s and why they are gold bullish (CLICK HERE).

Eric King KingWorldNews.com

Chris Martenson Opines…

In the remarks below extracted from his paid newsletter, Chris explains what is underlying some recent public pronouncements….. I have great respect for his insights and strongly recommend you check out his site for yourself.   http://www.chrismartenson.com/martensoninsider

The Pressure Builds  

Sunday, June 6, 2010, 6:10 am, by cmartenson
Well, what a lousy week in the stock and European bond markets that was. The S&P recorded its first weekly close below the 50 week moving average (wma) in a year.
It now seems probable that the rally over the past year was an ordinary bear market rally - albeit a long one fueled by the trillions of dollars in stimulus and thin-air injections - is over and done.

So the question is, what next?

The G20 Shocker

As pronounced as the stock market volatility has been, there are much bigger stories out there right now.  The biggest came out this morning and told of a pronounced departure of policy in the G20 that has far-reaching implications:
G20 drops support for fiscal stimulus
June 5 2010
Finance ministers from the world’s leading economies ripped up their support for fiscal stimulus on Saturday, recognising that financial market concerns over sovereign debt had forced a much greater focus on deficit reduction.

Wow. That’s an enormous departure from past policy and creates an enormous gap between major countries, primarily the US, UK and Japan on one side and everybody else on the other.

Consider that the US and the UK are currently running deficits well north of 10% of GDP and are politically committed 100% to continued stimulus as the means to stoke domestic demand.  But along comes the rest of the world saying that they are now committed to living within their budgetary means.

Worse, these converts to fiscal sanity have even thrown in the towel on the very idea that stimulus works: 
The communiqué of the meeting made it clear that the G20 no longer thought that expansionary fiscal policy was sustainable or effective in fostering an economic recovery because investors were no longer confident about some countries’ public finances. “The recent events highlight the importance of sustainable public finances and the need for our countries to put in place credible, growth-friendly measures, to deliver fiscal sustainability,” the communiqué stated.
“Those countries with serious fiscal challenges need to accelerate the pace of consolidation,” it added. “We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions”.

Doubting the value of expansionary fiscal policy is the same as saying, “Keynesianism doesn’t work!” I welcome their belated discovery, but am also shocked by it.  Is it possible for economic sanity to break out across the world?
This is a profound event, the importance of which cannot be overstated.

Beggar Thy neighbor

In the 1930’s, during the depression, the practice of competitive currency devaluation as a means of lifting exports was known as the “beggar thy neighbor” policy.
Each country would seek to devalue its own currency because that would make its exports seem cheaper to the rest of the world and thereby lift their domestic industry and job growth.

So we keep our eyes peeled for any and all efforts to systematically weaken a currency to help our exports. Here’s one:
“I see good news from the current euro-dollar rate,” French Prime Minister Francois Fillon told reporters in Paris June 4. President Nicolas Sarkozy “and I have been saying for years that the euro-dollar rate didn’t reflect reality and was penalizing our exports,” he said.

Where Mr. Trichet is extremely happy to bring a weaker euro to his countrymen and colleagues, the US is going to find that the policy makes things much harder on its export markets and corporate earnings. But the worst of it is that where the US is seeking to stimulate domestic demand at any cost, the rest of the G20 is seeking to repair their domestic budgets. This will create enormous difficulties for the US to continue on its own path of $1.5 trillion deficits.  After all, who will continue to buy US debt when European budgets are being run on a much more sound and sustainable basis?  This is not yet clear and if it turns out that the US cannot fund its deficits, then the US will be forced into austerity by circumstances.

From The Outside In

For now, the world financial markets seem to complacently accept that the US represents the safest and most liquid market in the world.  Well, the liquid part may still be true, but the safest part just took a big hit with the G20 now offering the first glimpse of fiscal sanity we’ve yet seen during this crisis (or in decades).

Where the G20 has now seen that false growth spurred by growing government indebtedness is both fake and temporary, the US has yet to arrive at that same conclusion.  This means that the US will be continuing on a reckless path of monetary printing and deficit spending while a large portion of the rest of the world bites the bullet and begins to live within its means.

This means that the US markets are no longer the safest.  There’s a problem here and I only wonder how long it will be before the bond and dollar markets wake up to that fact.  It may be a while, but eventually they will and it will be a sight to behold.

Which means that the whole concept of “from the outside in” is in play. The trouble began in Greece, progressed to the center of Europe, and will someday arrive in the US markets.  It is virtually unavoidable at this point and the G20 announcement moves up the probable date.

Gold

My view of the dollar is that it is the worst currency out there…except for all the rest.
Not to be boring or anything, but gold performed beautifully during Fridays 300+ point Dow rout.  Instead of viewing this as a vote for gold, I viewed this as a vote against fiat currencies.   There is real fear out there right now that all of the various fiat measuring sticks are not as desirable to hold as compared to gold.

Certainly there was a bit of market fear playing into the price, but I suspect there’s more than a little concern over either the euro or the dollar as legitimate stores of wealth. The former because it might break apart and the latter because the US has said it will print up as many as needed to keep domestic demand artificially elevated.

Note that gold, a monetary metal, went up on Friday but that silver, an industrial commodity, went down.  This is what we might expect from a low growth environment that could lead to additional monetary uncertainty. The industrial metal goes down, the monetary metal goes up.

As an aside, my two-thirds to one-third split between gold and silver has always been partly a hedge; gold will perform well if the monetary system breaks down and silver will perform well if the economy takes off like a rocket (mainly due to severe depletion issues and the fact that silver has no substitutes for several critical applications). While silver still has some utility to me as a potential future monetary metal, I see that as further off and less certain than the story for gold.

We note that, along similar lines, the following article appeared in the China Daily of June 1.

West moving toward deeper financial abyss

By Lau Nai-keung
Published:6/1/2010

A year and a half after the first shock waves of the global financial tsunami, Western economies — including the US and the European Union (EU) but excluding Australia and Canada, which are big natural resources exporters — are marching toward economic failure. I base this assertion on just one thing: Their governments are afraid to do the right thing.

With the full knowledge of what their fatal policies will lead to, their politicians do not seem to have the political courage to rally the support of the people to accept the necessary pain and make the sacrifices as preached by the Washington Consensus. Instead, Western governments have taken the other direction.

Much attention has been focused on the stagflation effect of spawning banknotes from helicopters, a metaphor for monetary quantitative easing.

That was bad already. Worse, the money has been given to a bunch of rich crooks who created the present quagmire in the first place. This is more than robbing the poor to pay the rich.

It is a typical case of grave moral hazard, especially in the US, where those who follow the rules are being punished for the benefit of those who destroy them. The world is now turned upside down, and it clearly spells trouble.

Greece shows that the EU has fared even worse. The country’s public debt is 125 percent of its GDP. It was accumulated through the same old protracted over-spending channel. The 110-billion-euro bailout package from the EU amounts to half of its GDP. But when the necessary austerity measures such as scrapping the double pay and tax increases were introduced, they triggered a national strike and millions of Greeks took to the streets in protest that resulted in three deaths.

The most corrupting result is that the happy go-lucky Greeks got what they wanted, setting a bad example for other EU member states, especially the PIIGS (Protugal, Italy, Ireland, Greece and Spain) countries.

The US cannot help many of its state governments from going bankrupt despite having central economic authorities. The EU does not even have that. So, we are likley to see many more ugly conflicts and demonstrations.

Just one trend has been stable since the financial tsunami: Western government bond yields have been rising relentlessly. Which means the government bond market is now heading toward a collapse.

Western governments cannot help it, because Western politicians want to please their voters, and the only solution left, as many pundits have said is more borrowing from Peter to pay Paul, more smoke and mirrors, and more lies. In today’s globalized economy, the Chinese are therefore the designated international Peters who can always be forced to pay the Western Pauls.

Let us take a look at the US. Its government and agencies have by far the largest stock of interest-bearing debts of $15.6 trillion, and the greatest indebtedness to the rest of the world at $4.8 trillion. The US blames the over-saving in emerging economies, especially China, and their under-valued currencies, for this predicament. And the solution is to pressure China into revaluating the yuan, a position echoed by the EU.

If the US economy is still in negative saving, which is inevitable with its trillion-dollar fiscal deficit, the large part of the shortfall still has to be made up by multilateral trade deficit. Granted that a revaluated yuan will reduce its deficit with China, but this has to be compensated by deficits with other countries.

Apart from hurting China’s growth, revaluation of the yuan is not the way out of the woods for Western economies.

There are inevitable ramifications for this borrowing-money, borrowing-time policy because the production of debt cannot forever replace the production of goods and savings, and no country can borrow its way to prosperity. Higher bond yield means higher interest for mortgage and car loans, which apart from delaying recovery, will also mean a devaluation of the existing stock of bonds and houses, making the life of many governments and individuals even more difficult.

Yes, governments can and will default their debts, and more are expected to default in the next one or two years. And should the US and the EU bond market collapse, they and their economic troubles will be too big for other countries to save them.

The Western economies, having spent well beyond their means for years, should spend less for some time to pay off the debts, and should take this opportunity to change their lifestyle and consumption habits drastically. Their governments should punish the financial fat cats and protect the small guys from desperation. It now seems that more Americans and Europeans will learn from the examples of financial fat cats and the demonstrating Greeks.

Quantitative easing has produced two decades of sluggish economy in Japan despite the robust external environment. External conditions are not that favorable now, and the whole situation should be worse. Factoring in moral hazard as well as social injustice, that implies political and social turmoil. The US and EU are destined to head south, at least for a while. Some pundits are talking about a double-dip this year, and in the longer run, we can expect many more dips.
 
The author is a member of the Hong Kong Special Administrative Region Basic Law Committee of the National People’s Congress Standing Committee.

Egon evaluates…. $5,000 - $10,000 gold?

Egon von Greyerz of Matterhorn Asset Management in Switzerland is no stranger to these pages. In the interview below he discusses with a panel on CNBC his outlook for gold…

The Central Bankers Dilemma

Darryl Schoon doesn’t mince words and that’s what we like about him.  Here he gives some thoughts on Central Bankers and the crumbling of the system over which they preside as well as a video warning about the precious metals ETF’s, GLD and SLV…

THE CENTRAL BANKER’S DILEMMA

HOW TO RIDE A DYING ELEPHANT

Economics isn’t rocket science. It’s common sense and economists don’t have any.

Bankers have a problem and because they do, so do we. In modern economies, bankers have two roles. As central bankers, overseers of the financial system, they are charged with maintaining economic order. As investment bankers, i.e. opportunistic predators, they profit from whatever opportunity presents itself. In the US, the former have now succumbed to the latter.

The system is dying. That much is evident. What is not evident is why it happened. In the long run, it may not be important. In the short run, it may not be important either as we are only observers, not those whose policies determine what will be. How the problem arose is less important than that it is fatal.

The idea that central bankers are independent is no more realistic than believing our political leaders are independent. Politicians –except for the very few—are captive to their own ambitions and to the special interests that allow them to parade on the public stage feeding their vanity and our sense of control. It’s a stage, however, that is about to collapse on everyone.

The eurozone crisis is only one of the many crises yet to come. The cost of the last two centuries is becoming obvious. The heady rush of scientific inquiry has produced hubris as well as truth and we are unable to tell the difference. What we do know is that we have gone too far.

The oil leak in the Gulf of Mexico is a case in point. The vast amount of global debt—sovereign, corporate, and consumer—is another. Having gone too far we don’t know what to do; and we have the disquieting feeling that neither does BP nor Ben Bernanke.

We are entering a period of deep change. The abrupt re-appearance of systemic risk in May is the wake-up call for the April fools who believed the financial crisis was over, that credit-driven prosperity would return with only more credit, that debt could be rolled forward ad infinitum, and that mankind, thank GOD, was once again in control of its destiny.

There is a great deal of difference between affecting destiny and controlling it.
If you don’t know the difference, don’t worry. You will.

THE END-GAME: STAGE II

There is a symmetry to life for those who notice. Those who expected the world to end in 2000 were disappointed. The world didn’t end but it did change. The end-game predicted by Morgan Stanley’s Stephen Roach began in March 2000 with the collapse of the dot.com bubble; and, while the end-game is underway, it isn’t yet over. It will be soon enough.

Modern economics is simple. The substitution of credit and debt for money produced debt; and as long as that debt could be serviced and/or paid down, everything was fine. The problems came when it couldn’t.

Today, credit can no longer contain debt. We are past the tipping point and it is clear where we are headed—all of us. The East (except for Japan which is even more indebted) is less indebted only because it entered the game later. Time is the only differentiating factor; and, given enough time, there will be no difference.

Debt is a two-edge sword with no handle

WHAT NEXT?

On April 14th, the Icelandic volcano, Eyjafjallajokul, violently erupted, disrupting air travel over Europe and the UK. Six days later, on April 20th, a BP deepwater drilling platform exploded, gushing oil into the Gulf Mexico causing what will be greatest environmental disaster in US history; and, in May, the Greek debt crisis exploded bringing into question the future of the euro and, indeed, Europe. What will June bring?

Gold is believed to be an inflation hedge and although inflation has been contained for the past ten years, the price of gold has quintupled. This is because gold is not just an inflation hedge, gold is a chaos hedge.

Gold’s continuing and inexorable rise is sign that the end-game is still in motion. Volatility and uncertainty are back and so is a rising price of gold. This will continue until the end-game is over; only then gold will reach its peak—at a price far higher than today.

The following chart shows the price of gold relative to the S&P. When gold finally peaks the ratio will exceed even that reached in 1980. The cause will be a devastating deflationary depression in combination with a cataclysmic monetary crisis.

When that happens, the gold/S&P ratio will explode upwards, exceeding past spikes and will not revert to previous lows. Instead, the price of gold will settle into a golden plateau until a new more stable currency regime arises.

http://www.ritholtz.com/blog/2010/05/gold-relative-to-sp500-1928-2010/

When that happens, physical gold, not paper gold, will be wealth’s safe haven. Paper gold will prove be have been but a false shelter erected by bankers hoping to divert gold’s rise into the paper assets they control. GLD, the gold ETF, is a case in point as is SLV. My Youtube video below explains why…

WHAT TO DO?

The handwriting is on the wall. Read it.

Buy gold, buy silver, have faith.

Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com
Blog www.posdev.net/pdn/index.php?option=com_myblog&blogger=drs&Itemid=81

Felix Zulauf on Inflation vs Deflation

This week in our musings, we focus on just one interview of Felix Zulauf by Eric King (I apologize for the short article this week – I’m crook!)…

• FELIX ZULAUF SPEAKS

Once again, Eric King at King World News has achieved an astonishing coup, by scoring an interview with Felix Zulauf, of Barrons Round Table fame. Felix (almost) never gives interviews… and when this man speaks, it pays to listen carefully. You will find a full bio for Felix over at Eric’s site; suffice it to say here that he has been a member of the famed Barrons Round Table for over 20 years. Personally, I find his understanding of monetary and financial history to be particularly acute. His vision of the future that is about to unfold is both plausible and apocalyptic. I urge you to listen to the interview in full ( http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/5/28_Felix_Zulauf.html), however to save you some time I paraphrase the main points below, together with some observations of my own, in parentheses.

• Gold’s role in the current crises

Almost all industrialized countries have too much debt relative to the size of the economy. Greece is acting as the canary in the coalmine; it is a pointer to the disease that is afflicting the developed world.
For the last 20 years, we have been living under the delusion that we could borrow ourselves into sustainable prosperity. However, the world is realizing that we have an unmanageable problem – we cannot continue as before. Serious doubts about the validity of our currencies have arisen. A number of high wealth investors and institutions have realized that they must have an alternative store for their wealth other than the fiat currencies – hence their interest in gold, the ultimate currency.

Unlike paper money, the amount of above ground gold cannot be increased at the press of a computer key, but only by hard work getting it out of the ground. (Also the supply from mines is increasingly limited). The ongoing bull market in gold is really a bear market in all the paper currencies. The supply and demand dynamics for gold are very interesting – historically, the driving demand for gold has come from the jewelry market. (Note, however, that gold jewelry in many parts of Asia and the Middle East is viewed as a store of wealth, as we have discussed in previous editions of Weekly Wanderings (WW)). However, over the last two or three years, the driving factor on the demand side has become investment (In previous WW we have discussed the activities in the gold market of such high profile investors as John Paulson, David Einhorn, George Soros and Paul Tudor Jones, all of whom are greatly increasing their gold holdings). On the other hand the supply side for gold is decidedly inelastic. Central banks that sold a lot of gold at much lower levels in the market now appear to have been stupid, to put it mildly, and they have recently, in total, become net buyers, (as we have noted several times).  We also have declining production rates of gold from mines.

• Inflation versus Deflation

(I have been puzzled for some time about the inflation/deflation debate that continues on the Internet. I found Felix’s discussion below to be most helpful)

Will this be like the 70’s? NO – the situation is completely different. Today, our problem is not inflation but DEFLATION – due to too much debt outstanding. (As we observed last week), more and more debt means more and more income required to pay interest, or service the debt. This is a Ponzi-type scheme, and it also implies less and less discretionary income to spend on things other than debt servicing. Thus we have an increasing drag on economic growth – so we will not be able to grow enough to service our outstanding debt. (As discussed in these columns, particularly with reference to the work of Chris Martenson, we also face the headwind of developing commodity shortages. If anyone is in any doubt about the desperate lengths to which oil companies are having to go to obtain more oil, just look at the tragedy unfolding now in the Gulf of Mexico).

 WE ARE THEREFORE IN THE ENDGAME OF THE SYSTEM AS WE HAVE KNOWN IT over the past 70 years or so. Now the policy makers are trying desperately to fight the deflationary tide, by adopting highly inflationary policies, (printing money without limit, as Greenspan and Bernanke have told us they would do). So we now have an highly unstable equilibrium, which will morph into either a deflationary collapse, or hyperinflation, (as, for example, John Williams of ShadowStats thinks).

Felix believes the deflationary storm is likely to increase in intensity over the next few years, until a climactic collapse occurs with a failure of such magnitude that the banking system in Europe and the US will be bust. In this situation, governments would be unable to bail out the offending institutions, because many of those governments themselves are already perceived as bust. At that point the central banks would come in big-time – their balance sheets would expand not by a factor of 2 or 3, but by a factor of 50 or 100. Within a few weeks, the paper currencies of those countries would become essentially worthless, thus forcing an immediate currency reform that would have become inevitable. As with all financial prophecies, the timeline is uncertain; however Felix sees the above scenario as highly likely within the next 5 years, but maybe as far away as 10.

The result will be that part of outstanding debt will be destroyed, together with part of existing wealth. What is different about this scenario from any we have seen over the last 70 years is that previously such events have been contained within a relatively small part of the world economy; this time it is likely that a number of industrialized countries will enter the process virtually at the same time, because of the interconnectedness of our current global financial system. (Just imagine what NZ’s position would be. We are inextricably linked to the financial system abroad, given our enormous borrowing requirement, relative to our GDP). 

• Protecting yourself

IF YOU WANT TO PROTECT YOUR ASSETS, SOMEHOW YOU HAVE TO GET OUTSIDE THE CURRENT BANKING AND FINANCIAL SYSTEM – THAT’S WHERE THE ROT IS.

Owning gold, a farm, real estate, is probably a good thing. We are in a transition between the Old World of finance as we have known it – into the New World and we will get it, whether we like it or not.

• Whither interest rates?

The short end is likely to remain at or near stay at zero until we have the new currency. At the long end, Government bond yields are either at lows or approaching lows, and this process should terminate over the next 12 months – marking the end of the 30 year bull market in Govt bonds.

• US equities

Since 2000 we have been in a secular bear market for equities. We are probably beginning the third leg down… heading towards a low on the S&P of maybe less than 500, within the next 5 years.

• China and India

Firstly, what happens in China is vastly more important than what happens in India. The Chinese economy appears to be definitely overheated; a severe cyclical recession is likely to ensue as the credit boom over the last few years bursts.  However China does not have the internal financial decay that the West has – according to Felix, they are one generation behind – therefore they are likely to undergo a severe recession next year, which would be akin to what happened to Western economies in the 1970s. A consequence if this were to ensue would be a concomitant bear market in commodities, maybe as much as halving the price of copper and other raw materials of which China is such a voracious consumer.
(I am not so certain about this outcome – China is building new cities at a furious rate – if these cities remain empty at the moment, there is a high likelihood that they will be occupied in a year or two. One of the facts that has stuck in my mind is the requirement for China to re-house the equivalent of the population of Australia each year every for the next 15 years at least. This is being forced on the Chinese government because they are well aware of the destabilizing effect on their own position if extreme social unrest were to develop).