Eric Sprott, Jim Puplava and Associated Thoughts

Wild Bill’s Weekly Wanderings 26 July 2010

Following on from last week this week we feature more from people whose opinion we respect.

Among the best is Eric King.  Eric operates with conviction - as does Eric Sprott. Last week, Eric K interviewed Eric S and I urge readers to check out the audio at
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2010/7/20_Eric_Sprott.html

For those of us that prefer to read, I provide a summary of the main points of the interview here.

Eric Sprott with Eric King

The busted “Bailout and Stimulate” formula

The net impact of the stimulus contributions and promises made since 2008 have resulted in a combined budget deficit of close to $2.5 trillion dollars and an incremental net increase in GDP of $200 billion. A $200 billion return for a $2.5 trillion increase in debt represents a terrible return on investment. It implies that the net impact of the stimulus on GDP since 2008 has been a mere 9 cents for every deficit dollar spent. Buying dimes with dollars is bad business, government-funded or not.

(Quoted from the May issue of “Markets at a Glance”.)

It’s the DEBT, stupid! After the stimulus program has been applied and then terminated, the debt has markedly increased, there’s no growth to speak of, and no one has any idea how this debt can be repaid…

Most large banks around the world are operating with way too much leverage. The risk in the system is “unbelievably immense relative to the amount of capital in the system”.

Quantitative Easing II (QE 2) – may be beginning already… Apart from the direct stimulus provided by TARP etc., there has been effectively a ZIRP (zero interest rate policy) in place now for quite some time. The banks can borrow at 0%, lend out at something above 0%, lever that up, and do quite nicely - thank you very much. Pretty soon, they can start reporting favorable earnings…

[Aside: while the above is happening, the banks are quietly starting to write off some of the toxic assets still on their books – which they have been allowed to mark to wishful model, rather than marking to market.
Damn – I wish I could persuade my bank to treat my overdraft as virtual in this way. I can just imagine the look on the face of my so-called “personal banker” if I said “Hey listen – everything’s cool – My overdraft of $10,000 dollars is really only $1, 000 according to my model – so I can borrow another $9,000 right?” What a sick joke.]

From “green shoots” to cliff diving

The current set of economic data points for the US is just horrible – and the trend indicates even worse to come. Printing money is losing its effectiveness as more and more is printed.

[Aside: It’s just like drug addiction, and for a very good reason – the processes are analogous. As a drug addict increases consumption of whatever it is, the body becomes habituated to the dose – which means that the dose has to be increased to produce the same kick. In the same way, as a society becomes addicted to the availability of cheap credit in order to function, the greater the increase in credit required to maintain the same level of economic activity.]

At all levels, national, state, corporate an individual, we have to reach rock bottom, i.e., we have to either renege on our debts or come forward with a credible plan for debt reduction. The Keynesian approach of continually increasing debt to pay off debt definitely cannot work in an environment where economic growth is anaemic at best.

[Aside: In China, on the other hand, where there is currently a supposed 10% annual growth, it just might work… Oh wait – they just happen to have N trillion US dollars in reserves, right? Seems like the Chinese might not need life support after all. Note to Mr Geithner: maybe, just maybe, it’s not such a good idea to keep lecturing your banker. And please don’t keep telling us you support a strong US dollar policy – that’s another really sick joke.]

Gold

Eric agrees with Ted Butler that there has been extensive manipulation of both the gold and silver paper markets by the bankers.

[Aside: The powers that be might prefer to say that the precious metals paper market prices were “regulated” or “governed” – sounds so much more reassuring, eh?]

Just imagine what would happen if the price of gold were $250 per ounce today. The worldwide demand for gold would be extraordinary… The continuing financial shenanigans are almost certain to ensure an inevitably rising gold price (probably with hiccups though) over time.  The price of gold is the canary in the coalmine – which is why there have been and are so many public pronouncements about it from such luminaries as Alan Greenspan and Paul Volcker.

Social breakdown coming to the US?

If jobs cannot be produced, some people are going to get desperate….

US dollar outlook?

All fiat currencies eventually assume their intrinsic value – zero!   Owning these currencies or storing your assets in them is unsafe!  Now your usual investment advisor might – if push came to shove –recommend that say 5% -10% of your net worth be in precious metals – Eric stated candidly that WAY BEYOND 50% of his assets were in gold and silver – and that he slept very well at night!

He advised us listeners to “go and do thou likewise”. Pretty powerful stuff.

Jim Puplava and Financial Sense

Why did I make the association of Eric King with Financial Sense?  Well, for one thing, Eric and Jim are good friends. I have listened to Financial Sense religiously since it’s inception on the Internet.  I never cease to be amazed and grateful that such a high quality program is available for free. After all, one can pay a lot of money for vastly inferior offerings – on mainstream media, for example…

Thank you for the fantastic public service you provide, Jim.

What I like most about Financial Sense is the quality of debate on the show. I perceive Jim as being ultimately fair-minded – he always presents both sides of an argument, and asks listeners to think for themselves and make up their own minds. In an age which is characterized by communication using slogans or political soundbites – like swarms of locusts, in the words of Leonard Cohen – see below - this is truly a rare and valuable gem.

On a more personal note than usual, throughout my life, I have experienced bouts of intense depression. Curiously, I always know when the depression is lifting – some piece of music grabs me by the gut and won’t let me go. I am moved so intensely that I am lifted out of that terrible state of intense self-absorption. One time it was the haunting slow movement of Beethoven’s Ninth. Most recently the catalyst for rebirth for me has been Leonard Cohen’s Anthem.

Such power and passion! Mr Cohen, I imagine us sitting down together and sharing a bottle of wine, and then I would say this to you: “ Thank you for cracking open my hardened heart and letting the light into my life. In the words of Jacob Boehme, the great Christian mystic, “What kind of spiritual triumph it was I can neither write nor speak; it can only be compared with that where life is born in the midst of death, and is like the resurrection of the dead”.

Sadly for me, I don’t imagine we will ever meet, one reason being that you and I are both getting older…  Good luck with the remainder of Act III, my friend….

A Convergence of Crises?

Wild Bill’s Weekly Wanderings 20 July 2010

This week, we are going to take a look out of our window on the world from down under - here in Auckland, New Zealand - and try to put a few things in perspective, adding some input from respected sources as we go.

Everywhere we look, from geopolitics, to the environment, to the financial world, and, of particular concern to us here – to the micro-world of the precious metals markets, we see the same fragility developing….

Storm clouds gathering in many sectors?  Rain already falling in others.

 

• GeoPolitics

There are at least two flashpoints developing in the geopolitical arena – Iran, and North Korea. It’s hard to know whether confrontations between the US and these two countries are inevitable – what we do know for certain is that when countries are on the verge of falling apart internally, they often resort to war against an external enemy – real or manufactured. Chris Martenson, whom we trust, believes that an impending war with Iran is inevitable.

We also know that increasing numbers of US warships are heading towards the South China sea, at the same time as tension is building over the sinking of a South Korean ship, ostensibly by an alleged North Korean torpedo. Is it an accidental coincidence that the Japanese government has recently announced that it would like to shut down the huge US base in Okinawa? Inquiring minds would really like to know…

 

• Environment: The Catastrophe in the Gulf of Mexico

This week, in King World News, Eric King interviewed Matt Simmons, one of the most respected figures in the oil industry. He has had a long career as an energy investment banker, and what he has to say about the disaster in the Gulf is truly alarming. From Day 1 of the crisis the American public appears to have been subjected to propaganda and lies from BP and the Obama Administration – and is still being fed this crap. Now, even if the well riser has been successfully capped, THE PROBLEM IS STILL THERE.

Fact 1:   There is a colossal lake of decomposing oil on the ocean floor, which contains large amounts of methane –which is a deadly toxic gas.
Fact 2:  As crude oil decomposes, one of the byproducts is hydrogen sulphide – another deadly toxic gas.
Fact 3:  The hurricane season is now officially under way. This year, an above average number of severe storms are forecast.
Fact 4:  The physics of water movement tells us that, in the event of a hurricane, deep water is drawn up to the surface from the layers above the sea floor – only, this time, it won’t be water, it will be a highly toxic mix of crude oil, gases and chemicals.
Fact 5:  If the mix described above gets into the air, it is very likely to be blown ashore, and if so, there WILL be large numbers of fatalities.

There seems almost no escape from the conclusion that an environmental and human disaster of unimaginable ferocity is around the corner. I wonder how US citizens will react when they discover that the nightly media tissue of lies that they have been fed, is just that – a tissue of lies.  Ask the people of America to clap their hands, Mr Obama, if they only believe… The new Messiah not only has not delivered – he has refused to do what was necessary, at every turn.

Perhaps some of you do not know that the Obama administration - and BP – have repeatedly been offered international assistance, which has been turned down every time.  The Norwegians in particular have extensive experience in operating in deep ocean oil environments – but that counts for nothing, apparently. I understand from listening to Matt Simmons that Taiwan have a skimmer that can suck up TEN TIMES the amount of oil that any of the equipment available in the US can handle. I also understand that there are some strange laws apparently not permitting foreign shipping in that area. OBAMA IS THE PRESIDENT, FOR GOD’S SAKE! If that is indeed the case, he could have gone on TV and made a passionate speech about how he was going to rescind those laws in the interests of national security – after all, isn’t that what he’s good at - the passionate speeches?

God help the United States. My heart goes out to all in the US – especially to my many wonderful friends there who have done nothing to deserve this fate – except to let themselves be governed by a bunch of mercenary morons – most of whom just happen to be millionaires. The founding fathers of this once great nation, now an empire in terminal decline, must be weeping in their graves.

As never before I truly appreciate the wise words of Lord Acton:  Power corrupts – and absolute power corrupts absolutely.

 

• Economy and Finance

There are so many red flags appearing now that a double dip recession is inevitable – unless QE2 is administered as a huge stimulus to jolt the flailing zombie that is the US economy back into some sort of semblance of life – albeit this will provide only a temporary respite from terminal collapse.  Please read the section below by Ambrose Evans-Pritchard of the UK Daily Telegraph, who sums it all up pretty nicely, if bleakly.

Fed’s volte face sends the dollar tumbling

Rarely before have a few coded words in the minutes of the US Federal Reserve caused such an upheaval in the global currency system, or such a sudden flight from the dollar.

The US workforce has shrunk by a 1m over the past two months as discouraged jobless give up the hunt Photo: AP

The euro rocketed to a two-month high of $1.29 and sterling jumped two cents to almost $1.54 after the Fed confessed that the US economy may not recover for five or six years. Far from winding down emergency stimulus, the bank may need a fresh blast of bond purchases or quantitative easing.

Usually the dollar serves as a safe haven whenever the world takes fright, and there was plenty of sobering news from China and other quarters on Thursday. Not this time. The US itself has become the problem.

“The worm is turning,” said David Bloom, currency chief at HSBC. “We’re in a world of rotating sovereign crises. The market seems to become obsessed with one idea at a time, then violently swings towards another. People thought the euro would break-up. Now we’re moving into a new phase because we’re hearing alarm bells of a US double dip.”

Mr Bloom said a deep change is under way in investor psychology as funds and central banks respond to the blizzard of shocking US data and again focus on the fragility of an economy where public debt is surging towards 100pc of GDP, not helped by the malaise enveloping the Obama White House. “The Europeans have aired their dirty debt in public and taken some measures to address it, whilst the US has not,” he said.

The Fed minutes warned of “significant downside risks” and a possible slide into deflation, an admission that zero interest rates, $1.75 trillion of QE, and a fiscal deficit above 10pc of GDP have so far failed to lift the economy out of a structural slump.

“The Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably,” it said. The economy might not regain its “longer-run path” until 2016.

“The Fed is throwing in the towel,” said Gabriel Stein, of Lombard Street Research. “They are preparing to start QE again. This was predictable because the M3 broad money supply has been contracting for months.”

The Fed minutes amount to a policy thunderbolt, evidence of how quickly the recovery has lost steam. Just weeks ago the Fed was mapping out withdrawal of stimulus.

Goldman Sachs said it expects the euro to rise to $1.35 by the end of the year. The yen will appreciate to ¥83, through the pain barrier for most of Japan’s big exporters. The new twist is that SAFE, China’s $2.4 trillion fund, has begun buying record amounts of Japanese bonds, a shift in reserve allocation away from the dollar.

The signs of a deep and sudden slowdown in the US are becoming ever clearer as the “sugar rush” from the Obama fiscal stimulus wears off and the inventory boost fades. California, Illinois and other states are cutting spending, tightening US fiscal policy by 0.8pc of GDP.

Thursday’s plunge in the Philadelphia Fed’s July index of new manufacturing orders to –4.3 suggests that the economy may have buckled abruptly, as it did in mid-2008. The Economic Cycle Research Institute’s ECRI leading indicator has tumbled, reaching –8.3pc last week. This points to a sharp slowdown or recession within three months.

While US port data looked buoyant in June, the details were troubling. Outbound traffic from Long Beach fell from 139,000 containers in May to 116,000 in June. Shipments from Los Angeles fell from 161,000 to 155,000. This drop in exports is worsening the US trade deficit, eroding the dollar.

The US workforce has shrunk by a 1m over the past two months as discouraged jobless give up the hunt. Retail sales have fallen for the past two months. New homes sales crashed to 300,000 in May after tax credits ran out, the lowest since records began in 1963. Mortgage applications have fallen by 42pc to 13-year low since April. Paul Dales at Capital Economics said the “shadow inventory” of unsold properties has risen to 7.8m. “The double dip in housing has begun,” he said.

Alcoa, CSX, Intel, and JP Morgan have reported good earnings, but they mostly did so in July 2008 just before their shares collapsed. Such earnings rarely catch turning points and can be a lagging indicator. Profits have been boosted in this cycle by cost-cutting, which is self-defeating for the economy as a whole.

The minutes confirm the Fed is split down the middle over QE. Fed watchers say the Board in Washington wants to be ready to launch another round of bond purchases if necessary, pushing the banks balance sheet from $2.4 trillion towards $5 trillion, but hawks at the regional banks are highly sceptical.

A study by the San Francisco Fed said the interest rates need to be –4.5pc to stabilise the economy under the Fed’s “rule of thumb”. Since this is impossible, massive QE needs to make up the difference.

Tim Congdon from International Monetary Research said the US authorities have botched policy response. “They are forcing banks to contract lending by raising their capital asset ratios. They have let M3 shrink by 1pc a month, as in the early 1930s. The solution is simple. The Fed must raise the level of deposits by purchasing bonds from the non-banking system as the Bank of England has done. They refuse to do it,” he said.

 

• Precious Metals

Remember Andy Maguire, the courageous whistleblower who exposed to the world – and the CFTC – the manipulation of the precious metals metals paper market a few months ago?  I am lucky and proud to call him friend. Since that revelation of criminal activity by the banksters, the CFTC has maintained a deafening silence.  Curious isn’t it? Surely this could not be connected to the fact that its chairman, Gary Gensler, is an ex Goldman-Sachs boy? Or could his hands be tied? One thing I am sure of; if the police had such detailed information about a crime you or I had committed, we would be behind bars – that is, unless we had powerful friends in high places….

Each week, Eric King, over at King World News, has fantastic interviews with highly respected figures in the financial and economic world, with an emphasis on precious metals. If I had to choose just one source of information on precious metals investment, this site would be my pick. Eric cares passionately about the fiscal and economic disaster that is the enveloping the United States. He chooses guests who are as courageous and committed as he is – it is very clear from the interviews that they like and respect Eric, in their turn. I was speaking to Rick Rule about this when he was last in Auckland, and he told me that he had really enjoyed being interviewed by Eric.

Probably my other favorite source of precious metals information would be Ed Steer of Casey Research, together with the rest of the Casey team, including Bud Conrad and Doug Casey himself, both of whom I have also had the pleasure of meeting.

Ed Steer has recently written this personal comment on the implications of the latest COT (Commitment of Traders) report for silver….

“This new Physical Silver Trust that Sprott just announced, will certainly hasten the end of this price management scheme.  One can’t know for sure when the end will come, but when it does, it will be with a bang… not a whimper.  Stories like this make me want to run out and buy more physical silver… which is exactly what I’m going to do when I get up this morning.  And, if you have a few dollars laying around, I might suggest you do the same.

As you know, I’m ‘all in’… and that means that I have 100% of my net worth invested in the precious metals in one form or another… physical metal and the shares.  I certainly don’t suggest that you do the same dear reader, as everyone has their own particular comfort level when it comes to this sort of thing.  Besides which, I’m not an investment advisor.  I just want to survive [and hopefully prosper greatly] when all is said and done… and this is the path I’ve chosen”.

Ed writes a newsletter more or less daily and you can have it emailed to you – the service is free. Again, if you are interested in precious metals investment, I consider it to be a vital subscription.  You can get it for free here.

Next, from Harvey Organ, at his Daily Gold Blog, comes this comment on the latest COT figures…

“Notes:  there was a massive 923,430 0z of silver removed from the customer inventory in silver
again no silver was added or withdrawn from dealer inventory…
 
…In gold:

In alarming fashion no gold has entered the gold comex vaults. A measly 127 oz of gold was withdrawn.  ( I understand 100 of those oz
but have a hard time understanding the 27 oz…..the  minimum bar is 100 oz ,so it is very difficult to explain the remaining 27 oz).

Yesterday saw another 31 contracts exercised for gold metal or 3,100 oz of gold.

The total amount of gold exercised in this non-delivery month of July totals 694 contracts or 69400 oz of gold or 2.16 tonnes of gold.
 
In conclusion, we continue to see a massive exit of silver from the customer vaults.

I want to emphasize the small number of silver contracts that were served upon yesterday, ie 8 contracts.  It seems to me that word is getting around to the ultimate silver owners at the comex to vacate the mother ship.  It is also surprising that the bankers cannot get any other silver holders to lease their silver.

That will explain the massive exodus out of the comex.  A default at the silver comex looks imminent.  Silver will default first.”

 

 And lastly, we include a piece by Bill Bonner of the Daily Reckoning, as quoted by Peter Cooper (ArabianMoney.net)

Why Bill Bonner continues to hold gold

Agora Financial founder and highly respected market commentator Bill Bonner is not tempted to sell his gold, despite the worry that deflation might persuade a few investors to sell.

‘If we were speculators, we might consider selling our gold,’ he says, ‘in tune with our deflation now, inflation later forecast. But we’re not gamblers. We hold gold because it represents real wealth, not because we think it will go up in price.

Gold is money

‘We don’t really know what direction it is going. But that’s why we hold it. We don’t know what direction anything is going. The nice thing about gold is that it doesn’t matter. Gold doesn’t go anywhere. It just sits there.

‘If you buy a bond, for example, you have to worry about the credit quality of the issuer. If things get bad enough, he won’t be able to pay up. Your bond could be worthless.

‘Same for stocks. A stock is a share of a company. If the company goes out of business, your stock certificates (assuming you have them) are only good for decorations. Real estate is more reliable. But there are taxes and upkeep to pay. Gold is a better way to store wealth. You don’t pay property taxes on it. And the roof never leaks.

‘Besides, gold is especially valuable when other forms of money lose their appeal. The trend of debt destruction will probably not end soon. And the feds will probably sooner or later follow Paul Krugman’s advice to raise [the Fed's] long-term inflation target, to help convince the private sector that borrowing is a good idea and hoarding cash is a mistake.’

Investment case

Mr Bonner will no doubt reinforce this message in his keynote conference speech to his annual investment conference, which convenes in Vancouver next week with ArabianMoney also participating for the first time.

Gold is a store of wealth. You also never quite know when its price will surge. An unexpected geopolitical or natural disaster would always send the price spiralling upwards.

But then an economic catastrophe is more predictable with the scale of US debt only having grown since the financial crisis caused by, well, too much US debt.

I have written this piece while feeling very low about what is happening. I have talked to many of my friends in the US who share at least some of the sentiments above, and I want you all to know that there are those of us internationally who feel for you and want to help in any way they can. My only realistic way to help is to write – I have done so as best I can.

If you share these sentiments, please circulate this letter as widely as possible….

This is Wild Bill, signing off from GoldSurvivalGuide.co.nz

9 People We Trust in the Precious Metals World

Wild Bills Weekly Wanderings 13 July 2010

This week, we adopt a slightly different approach, and present some notes on several different topics:

• People we Trust
• Data we Love – False Interpretations we Hate
• The Paper Market vs the Physical Market

• People we Trust

Over several decades of market experience we have learned the hard way that, just as with life in general, there are people you can trust and those you should not. Trust has to be earned over time of course, and one of our aims on this site is to bring you information that we believe to be valid, largely because we have learned to trust the information source. We also try to introduce you to information sources that satisfy our criteria for accuracy and trustworthiness.

Here is a (not at all exhaustive) list of people that we have learned to trust, in no particular order. Some we have met in person, and most are known to each other. All share a distrust of government and institutional propaganda, and the rigged markets controlled by Wall Street. All understand the importance of accurate data determination and abhor false interpretations of that data. I have been trained professionally as a data analyst, and I share that interest in data and the abhorrence of the crappy announcements that often follow its release. All are also aware of the implications of the global pressures on scarce resources and the debt millstones around the necks of almost all western governments.

Chris Martenson, Jim Puplava, Ed Steer, Ted Butler, Eric King, Doug Casey, Rick Rule, Pierre Lassonde, Marc Faber.

If you really want to get behind the façade of lies that is dished up to us daily from the media as so-called financial and economic news, you could do no better than check out, as we do, the sources above. As I have already said, this list is my no means exhaustive, and we have many other sources that we trust and follow also.

From now on, we hope to feature a “trusted source of the week” and report on what that person is currently saying about precious metals, and markets in general.

This week we mention Ted Butler, whose work is known and trusted by us, and many many others in the precious metals community. Each week Eric King over at King World News carries a weekly metals wrap with Ted – which for us, is always ‘not to be missed’.

Ted is a man who chooses what he says very carefully. He is definitely not given to wild pronouncements, and always bends over backwards to give people the benefit of the doubt. So when he stated publicly recently that the activities of the big 4 short sellers of paper gold and silver constitutes a criminal enterprise, and that the CFTC was maintaining a deafening silence in the face of such activity, this was powerful stuff indeed.

We will discuss the implications of this further in an item below.
 

• Data we Love – False Interpretations we hate

Jim Quinn, over at theburningplatform.com is another who is able to look behind the crap that masquerades as financial news and tease out the details that can expose these false prophets. 

The Truth About Consumer Credit

July 10, 2010
 
The Federal Reserve reported consumer credit Thursday afternoon. The amount of consumer debt fell for the 15th time in the last 16 months. The dingbats on CNBC used their dire voices to conclude that the American consumer has taken austerity seriously, is truly cutting back on credit card spending. The MSM spouts the usual drivel about how the consumer is getting tired of being so tight fisted and will begin to spend again.

Why is it that supposedly the best financial minds on TV and Wall Street are so stupid they can’t even look at a basic chart, use a calculator and realize that the consumers have not cut one dime of spending? Are they lying on purpose or are they so clueless a 3rd grader could do better analysis?

Below is a chart showing the dramatic decrease in the change of consumer debt. Now let’s get real. Consumer debt outstanding peaked in 2008 at $2.56 trillion. One and a half years later it has PLUNGED to $2.42 trillion. Yeah the consumer sure has buckled down.

Now this is where Larry Kudlow and Maria Bartiromo would have to actually think before they opened their traps. We know that banks have been writing off credit card debt, auto loan debt and other consumer debt at a 9% rate for the last two years. Everyone get your little calculators out. This means that the outstanding balance of $2.56 trillion at the end of 2008 would have been reduced by 13.5% over the last 18 months because the banks wrote it off:

$2.56 trillion x 13.5% = $346 billion written off.
$2.561 trillion – $346 billion = $2.215 trillion

The outstanding consumer debt as you may have noticed is $2.42 trillion. Is a lightbulb going off over your head yet? The American consumer has ADDED $200 billion of debt in the last 18 months. The delusion continues. Americans have done exactly the opposite of what they should be doing. The savings rate has plunged again and consumers are whipping out their credit cards and buying cars with 13% down and financing for 6 years.

I ask you again. How can the million dollar talking heads on CNBC not do this simple 5 minute analysis before reporting falsehoods to the American public?
Revolving credit (credit card debt) is off 14.9% from the peak. Non-revolving debt (auto, furniture, and other loans) is off 1.5% from the peak. 

 Disclosure: No positions

 

• The Paper Market vs the Physical Market for Precious Metals

Ted Butler, who we featured above, often talks about the disconnect in the precious metals markets that exists between the paper and the physical markets. This disconnect holds for both monetary metals, but is particularly marked in the case of silver.

The  physical market in silver and gold is extremely tight. Investment demand is increasing steadily, as many more people around the globe are becoming increasingly concerned about the fragile and fraudulent nature of our money system. The paper market, on the other hand, is controlled by the banking cartel led by J.P. Morgan, who are able to pull their bids at specific times and force the paper price down, thus allowing them to cover their short positions and to rebuy long positions – then allowing the price to rise to a higher level, where the game starts all over again. The good news is that these forced corrections give us tremendous buying opportunities to purchase physical gold and silver at artificially low paper prices. 

It’s just like going into the supermarket and finding your favourite items on sale again and again.

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

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!

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…

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).

Stephen Leeb: The Real Threat to Europe, the US (and NZ)

This week in our musings, we have some thoughts of our own – and thoughts of others that we have found interesting….

The opening headline in this week’s NZ Sunday Star*Times Business section reads “Gold Production heads to $1b”. It seems that gold is starting to attract mainstream attention, even in New Zealand. Over the page, in Rod Oram’s piece, we find this fact reported:

The sum that we (NZ) owe the rest of the world – our net international liabilities – are now 90% of GDP, the third highest in the world after Iceland and Hungary - and are forecast to reach 100% of GDP by March 2014.

Finance minister Bill English correctly referred to this as “New Zealand’s largest vulnerability”.

I for one would like to know the ratio of our debt servicing costs to our income – this is actually a much more important number then the one above, for the simple reason that it defines our ability to pay our way. Suffice it to say that New Zealand’s vulnerability lies in its requirement to continually borrow from abroad, and therefore our interest rates are inescapably tied to overseas rates. The remarks I made last week about the effect on US debt repayments of rising interest rates apply to us in spades.

Now to some of the articles that have grabbed our attention this week…

• William Engdahl: Euro slump due to Attack from Wall St and Washington

• Stephen Leeb: The Real Threat to Europe, the US (Ed: and us)

• Jim Rickards: Financial Warfare, and More

• Mish Shedlock: New Proposals to keep Australia’s Housing Bubble from bursting

 

Euro slump due to planned Wall Street and Washington’s attack - William Engdahl

Germany’s Chancellor Merkel says the Euro currency is at risk and that Europe faces its greatest challenge since the EU was formed.

It comes as stock markets in Europe and Asia tumbled on the surprise news that Berlin was banning types of ’short selling’ – where investors profit by betting that shares will drop in value.

The euro is under pressure after nations using it had to pull together to bail out Greece, which is struggling under a massive debt and from strikes that are bringing the country to a halt.

Many say the aid package came too late and that the crisis in Athens may be a prelude to the currency crumbling.

William Engdahl, author and economic researcher, thinks it is the greatest challenge since 1999 when the euro was created.

He said the crisis is the result of an orchestrated attack by the U.S. on the dollar’s main rival.

“The whole attack on Greece and the attack on the euro originated from a concerted strategy of Wall Street and US Institutions to permanently cripple or try to cripple the only alternative reserve currency anywhere in the world that can challenge the dollar,” Engdahl told Russia Today.

 

Stephen Leeb: The Real Threat to Europe, the US (Ed: and NZ!)

Stephen Leeb was trained as a mathematician and psychologist, and I have found him to be right on the money on a number of occasions. He’s another guy I listen to carefully when he speaks… In these remarks he discusses the indirect taxes that increasing energy and commodity prices impose, and his view on gold.

Don’t mistake us: the euro will disappear in time. It’s just that, for now, European nations are taking some positive actions that the market sees as reducing the risk of economic Armageddon. France and Spain have decided to cut benefit packages for their civil servants to reduce their deficits. Germany has approved of the massive bailout package to help Greece, which amounts to de facto quantitative easing.

If there were no further problems down the road, we might expect the euro to eventually bottom out at around $1.10 – maybe a dollar. The EMU might eventually unwind the recent quantitative easing and come through the current crisis intact.

Unfortunately, the road ahead is far from smooth. And the problems that lie ahead have far more to do with resource scarcity than Western governments’ excessive debt levels.

Let’s take an example from the U.S. (just because the data is readily at hand).

While some people enjoyed the weather this past weekend, I confess I spent my time crunching numbers. By doing so, I came to some poignant conclusions regarding the average American family’s energy costs in recent years. Between 2000 and 2005 (the most recent year for which government stats are available), energy expenditures per U.S. household rose from an average of $2,200 (or 4% of expenses) to $5,000 or 10% of expenses.

Although more recent figures on energy expenditures are not yet available, we know that household incomes have fallen since 2005 while energy prices have risen. So it’s fair to say that the average household pays an equal or greater percentage of its income on energy today.

That’s a huge after-tax increase in Americans’ cost of living. It’s like paying nearly $3,000 more each year in taxes – after you have finished paying Uncle Sam. This money doesn’t go towards fixing potholes, making education affordable, or stimulating the economy. Instead, much of this money goes overseas to enrich the oil-exporting nations.

Naturally, the same is true of increases in the price of virtually every other raw material the U.S. imports. Copper, nickel, zinc, platinum, and many other commodities have gained substantially over the past 10 years. And every resulting increase in the cost of living suppresses consumer spending, much as a tax would, but without any redeeming side effects.

Naturally, Europe faces similar problems. (Ed: - and so do we here in NZ) Like the U.S., it imports a lot of oil and raw materials. Admittedly, it has been further ahead than the U.S. when it comes to developing alternative energies. But now that Europe faces pressure to cut government deficits, alternative energy projects may take a back seat for a few years. (Instead, the new world leader in alt. energy is China and it is widening its lead every day.)

Going forward, the combination of greater fiscal restraint and rising commodity prices will put a lot of strain on Europe. It will probably lead to a sustained period of quantitative easing, which will pit European nations against each other.

In the end, resource scarcity more than sovereign debt will cause the biggest problems in both Europe and the U.S. It will restrain people’s ability to send their kids to college, pay for healthcare, or retire while they’re still young enough to enjoy it.

As for gold, we remain confident that gold offers us long-term security against market declines.  Simply said it is the world’s strongest currency in times of uncertainty.

 

Jim Rickards: Financial Warfare, and more

Jim Rickards, Senior Managing Director of Omnis Inc, is interviewed often by Eric King of King World News. King World News is a very important site for followers of the precious metals markets to keep a close eye on. Nothing of importance to these markets escapes Eric’s eagle eye. The full interview is carried on the site, and I urge you to check it out; I attempt to paraphrase the important points below.

Financial warfare: it may not be obvious at the time it’s happening – there is a slippery slope from open markets to closed markets to adversarial markets. Now, while China may not be engaged in actual warfare at the present time, it is certainly wielding a huge deflationary hammer against the US - thus contributing to Ben Bernanke’s worst nightmare, because of the impact deflation has on banks and on debt. Currently, we have apparent price stability because the forces of deflation, coming from China and elsewhere are balanced by the forces of inflation i.e. money printing by the central banks. However this is an unstable equilibrium – the balance can easily tip from one side to the other or shift back and forth.

Interestingly, gold is an investment that does well under both inflation and deflation.

It is interesting to speculate who the buyers are, now that gold is undergoing a correction; in any case these short term fluctuations are not of concern. Jim still has a short term target of $2000 per oz, and $5000 per oz for the medium term.

Credit default swaps do not form part of the free market – they form part of a rigged game. To be clear, the fiscal situation in Europe is a mess. However, CDS make the situation many times worse. With derivatives, you can attack a country with no money down. The $1T rescue package will not work; GS could create  $5T worth of shorts in the form of credit default swaps, which they can do over the phone. Governments, led by Germany are fighting back, however. Jim makes the point that these countries are important Nato allies; the investment banks have been allowed to run riot, but this situation may not continue.

 

Mish Shedlock: New Proposals to keep Australia’s Housing Bubble from bursting

(Ed: wonder what Steve Keen will say about this…)

Insanity Down Under: ING Says Thanks to Capital Appreciation, Paying Principal on Mortgage Loans is Unnecessary

from Mish’s Global Economic Trend Analysis by Michael Shedlock

Myths that home prices rise forever and interest rates stay low forever are alive and well in Australia. Please consider this amazing story of corporate insanity as described in the Sunday Telegraph - Revealed: The home loan that could save you a fortune.

ING Direct, Australia’s fifth largest lender, is preparing to sell loans that have no fixed term and no requirement to repay any capital along the way.
 
At current rates, the interest-only loans would cut repayments on a $300,000 mortgage by $5000 a year.
 
“People are needlessly being denied the chance to buy a property while prices spiral rapidly out of their reach” ING Direct CEO Don Koch said. “There is an urgent need to provide more affordable options and borrowers should be able to choose whether they want to repay the capital, or not.”
 
Mr Koch wants to position the bank as a “mortgage partner for life”, with borrowers carrying the same interest-only loan from property to property for as long as they wish, accumulating equity from rising house prices as they go.
 
Then, as they near retirement, they could sell their property for a big enough profit to pay off the original loan and buy a smaller place outright, leaving them mortgage-free. Or, they could keep the mortgage going and repay the original capital from their estate, after death.
 
Banks already offer interest-only loans, but borrowers often are allowed to keep them only for five to 10 years. Then they must start paying the capital.
 
But ING says this preoccupation with paying off the loan is unnecessary.
 
“There is no economic reason for banks to insist on regular capital repayment,” Mr Koch said. “It just makes the loan more expensive for the borrower.
 
Financial comparison website InfoChoice CEO Shaun Cornelius said the move was a welcome innovation: “Depending on the size of the loan, it could add hundreds of thousands of dollars to a borrower’s cash flow over their lifetime.”

Economic Idiocy
 
Koch’s proposal, seconded by CEO Shaun Cornelius of InfoChoice, is economic idiocy at its finest. No one “saves” anything by not paying down mortgages, the money is simply spent (most likely wasted) elsewhere. Moreover, home prices do not perpetually go up.
 
The US housing market has without a doubt proven both statements.
 
Ask any homeowner in the US who is headed for retirement and severely underwater on their home what they think of Koch’s hypothesis.
 
With so many underwater mortgages, only a complete fool think estates would be in a position to repay the original capital from their estate, after death, especially in countries where the bubble has not yet popped, such as Australia, Canada, and China.
 
Of all the proposals to keep the housing bubble alive in Australia, especially in light of what has happened in the US, this idea from ING needs to go straight to the top of the idiotic ideas list.
 
ING Direct CEO Don Koch is testament to the idea “there is always the greater idiot who never learns a thing from history, who instead proposes to do something that the market has recently proven preposterous.”

Simple Questions
 
By the way Mr. Koch, I have a few simple questions for you:
 
Are you aware of what interest rates were in the 1970’s and 1980’s?
 
“What happens when interest rates rise, perhaps even double, and your borrowers struggle to make even the interest payments?”
 
Alternatively, “Are you dumb enough to offer low rates forever?”
 
Either way. Mr. Koch, you and your banks are screwed, and it should not take a genius to figure that out.
 
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Gold: The Safest Bet, Unlimited Demand, Vending Machines, and Price Projections

This week in our musings, we have some thoughts of our own – and thoughts of others that we have found interesting….

Looking around the economic landscape, it’s hard not to have a sense of foreboding. Despite the optimistic propaganda from our governments and financial centres, it is clear that things are not good out there on the ground. I have had talks with many ordinary people in the US and have heard stories of increasing hardship, like the lady in Massachusetts who has just lost her job at the medical centre where she has worked for 14 years. Her boss told her he was very sorry to have to lay her off but he had never seen the economic situation so bad. I also talked to a guy who had lost his job in a business supplying parts to the auto industry. Aged in his late 30s, he had no skills apart from what he had picked up during his job there, so had very few prospects. I also talked to my plumber mate in New York, who told me he was surviving, but had seen many of his mates losing jobs.

Now this is all anecdotal evidence, but stories like these abound all across the US.

The financial markets remain in a precarious state. The financial crisis that exploded publicly in 2008 has not been defused; on the contrary the crisis is protracted, ongoing and has no end in sight. The cracks have simply been papered over with another layer of derivatives. The cause of the crisis – TOO MUCH DEBT – has been answered by the creation of yet more extensive and expensive layers of debt. At the moment, with artificially low rates of interest, the interest that the US pays on its national debt is manageable, but if interest rates were to rise to a “realistic” level – say at least greater than 6% - then it becomes a different story, with the servicing cost of each layer of debt rolled over multiplied 6-fold.

Although deflation seems to be the story of the day, the truth is that, behind the scenes, price inflation is increasing rapidly – wholesale food prices in the US have been rising inexorably for the last six months.  It is not an accident that the top 3 US states doing best in the current environment are North and South Dakota and Nebraska. These are states heavily reliant on farming for their income. Of course North Dakota has the undoubted advantage of having its own bank – but that’s another story.

This inflation genie will NOT go back in the bottle… Notice that the price of technology is going down – but what will happen as time goes by is that the average household will have to spend increasingly more on food and energy, and therefore less on everything else, as the supply of credit to these households has all but dried up. Now, if there is indeed rapid inflation – indeed even possibly hyperinflation about to occur in the US, there will be downward pressure on the US dollar, and increasing reluctance of foreigners to fund US borrowing requirements.

Meanwhile, we have a European sovereign debt crisis, and a situation in the US where at least 40 of 50 states are insolvent – the most notable being California. At the same time the price of gold is rising inexorably, having broken out to new highs above USD1200 per oz. This is occurring at a time when the US dollar index is rising. Of course the price of gold in euros is reaching new records almost daily as the euro plunges in value against the dollar.

What can we learn from all this?  Just think about the consequences if the US (to take an example) is forced to close financial markets – and currency markets – for some period of time. We have been informed that that very situation came very close (only hours away) to happening in 2008. Foreign markets would be forced to shut down as a result. New Zealand has to borrow $240 million per month from abroad, just to stay functioning. We are NOT isolated from foreign currency or banking events. What do you do when your ATM no longer works? Do you have enough currency available to you to survive for say a week?   How would you deal with a situation like that in Argentina not long ago when people went to bed one night with savings in the bank and woke up the next morning to be told their money had vanished? Might be worth thinking about…

Of course, you might also consider the fact that in the early 1970’s, before Nixon closed the gold window, you could buy a good man’s suit in the US for $35 which was the value of 1 oz of gold at that time. Today a comparable suit costs more than $1000 – around the value of 1 oz of gold now.

 

Now to some of the articles that have grabbed our attention this week…

·        JP Morgan: Gold Could Now Face ‘Unlimited’ Demand

·        The Safest Bet During Uncertain Markets – J.S. Kim

·        Abu Dhabi Hotel Installs Gold Vending Machine

·        Louise Yamada’s Projections for the Gold Price

 

JP Morgan: Gold Could Now Face ‘Unlimited’ Demand

From: Businessinsider.com

JP Morgan’s John Bridges believes the latest breakout for gold was a huge positive sign for the metal.

Euro weakness fears, coupled with dollar weakness fears, could lead to an enormous amount of demand:

JP Morgan:

A German banker once told us that gold normally trades like a commodity. However, when investors lose confidence in currencies, because the pool of gold is so much smaller than the pool of currencies, demand for gold can effectively become unlimited. We believe the European version of “QE” is generating serious currency worries and led today to the breakout of the gold price above the previous intraday high at $1,226/oz.

We see this breakout as significant: The market might have welcomed the European’s latest solution to the Greek crisis with a weaker gold price. If the gold price had fallen, bears could have pointed to a “double top” in the chart, and this could have contributed to a period of weakness for the metal.

They’re recommending exposure both through gold and gold-related stocks, as insurance, since despite the fact that gold is a record price levels, they believe that it could feasibly go far higher. Guessing just how wild investors will get for an asset is still a horribly tricky game nonetheless.

 

John Kim is one of our trusted sources – we have examined his recommendations over a long period and now listen very carefully to his perspective.

The Safest Bet During Uncertain Markets

from The Underground Investor by J.S. Kim

With six consecutive intraday triple digit swings from high to low in the DJIA index, here’s the safest bet during these uncertain times. Beginning last Thursday, volatility has returned to US markets with a vengeance. So who’s going to win the battle between the bulls and bears now? With the loss in confidence in global markets and the further exposure of the rigging games of markets precipitated by the 700 point drop in the DJIA in ten minutes last Thursday, sustained volatility and further corrections are likely in our near future. If so, then where’s the safest place to be now? The same place it has been for the past five years – precious metals.
Since we’ve launched our investment newsletter in June of 2007, precious metals have been a core holding of our newsletter. Since we began publishing our newsletter, at times we have held Chinese RE and technology stocks, Brazilian oil producers, various agricultural stocks and so on, depending upon our assessment of the risk-reward parameters of holding stocks in these specific countries and specific sectors. During other times, our holdings in precious metals have been much more concentrated. However, the common denominator throughout all 35 months we have published our newsletter has been the holding of precious metals. During this 35-month period, our Crisis Investment Opportunities newsletter has outperformed (as of May 12, 2010) the Australian ASX 200, the UK FTSE 100 & the US S&P 500 by 308.89%, 304.87%, and 300.85% during the comparable investment period.

And yes, our core foundation in precious metals is what has provided stability and tremendous growth to the core portfolio of our investment newsletter during this time. Listen to the propaganda of western commercial firms, however, and you may not even know PMs are an investment asset. Consider the following story reported by the Los Angeles Times in April 5, 2010:

At least one-third of Kimberly Sterling’s clients have sought advice in the last year about investing in gold. The Orlando financial planner has successfully discouraged all but one from doing so. That one investor insisted on having some gold in his portfolio, she said, despite her warnings. Eventually she referred him to a gold-commodities exchange-traded fund that has done well during the metal’s decade-long run-up in price. But her firm, Resource Consulting Group, still wouldn’t buy in. “Our bottom line is this: Gold is a bubble now, and it is too late to get in,” she said recently. “It is like someone who bought real estate in 2006, at the height of that bubble. You could get hurt really badly.”

Since the time that article ran, gold has since returned 10.08% and silver 10.17%. The S&P 500? -2.5%. Terrible advice like the above is typical from advisers that work for large commercial investment firms because (1) most are willing participants in the massive fraud inherent in the world’s stock markets today; and (2) they fail to understand the mechanisms of our monetary system. If they truly understood the mechanisms of financial markets today, they would understand that all the commercial investment advice about gold being a risky asset is pure propaganda along with 90% of the other advice they dole out to their clients.

If you understand how the global monetary system and financial markets truly operate, then your vision will expand from the tunnel vision of most commercial investment firm advisers to a much wider perspective that would recognize the importance of owning gold and silver.

Almost four years ago in this article, on August 16, 2006, I stated the following:

“Over 7-½ years, if your portfolio has tracked the S&P 500’s index as some 97% of professional money managers aim to do, you have about the same amount of money you had 7-½ years ago. Only with the rapid devaluation of the dollar, your same amount of dollars buys much less today, so…tracking the index has lost you money…And that’s the good news. The bad news is, as of 2006, the US stock market’s performance will likely become even worse for the rest of the decade.”

Though it’s hard to remember the sentiment surrounding US stock markets four years ago, I can assure you that at the time I delivered my above predictions, the general consensus was that I was crazy. So how did my above prediction pan out? On August 16, 2006, the S&P 500 closed at 1,295.43. Today, it stands at 1,157.43 for a loss of 10.65%. Consider the devaluation of the dollar and your losses amount to a much more significant amount than 10.65%. And what about gold during this time period? On August 16th, gold was selling for $629.75 an ounce. Since then, at $1,236.80 an ounce, gold has risen 96.40% (less the inflation of the dollar during this time). But even back on August 16, 2006, thousands of advisors that work for global commercial investment firms were dispensing terrible advice similar to Kimberly Sterling’s even as I was outlining, in this article, the reasons why “Gold’s Speculative Stigma is Unwarranted”.

How do I know this? Because when gold was trading at $500 an ounce, I recall reading analyst reports by precious metal “experts” at top financial firms that warned their clients of a massive gold bubble and a pending crash of gold from $500 an ounce back to the $250-$300 an ounce range. How can these experts have been so wrong?

Three reasons.

ONE: Commercial investment firms do not earn fees from their clients buying gold and silver. Thus, the reason they perpetually discourage it. Precious metals are the enemy of all fraudulent fiat money including the SDRs of the IMF and the financial derivative products of Wall Street. Consider this story in which HSBC ordered their clients to remove their gold from their vaults, all at their own expense.

TWO: Commercial investment firms do not educate their financial consultants regarding precious metals. Most of their consultants probably could not even properly explain something as basic as the difference between ounces of metals classified as resources and those classified as reserves and the significance of the different categories among these classifications. Having no basic understanding of precious metals leaves their consultants woefully unprepared to provide any type of meaningful guidance regarding PMs. For example, when the aforementioned Kimberly Sterling finally gave in to her one client that insisted on owning gold, she steered him into a paper gold ETF. But here’s why even that advice will most likely turn out to be a huge mistake.

THREE: Most commercial investment firms rely on the naïve trust their clients place in them and their client’s lack of understanding about how they reap their profits to exploit them. They manipulate their clients’ fear about volatility and misunderstanding about diversification to ensure that their clients don’t invest in PMs and instead, invest in financial instruments likely to return less but generate more fees.

Yes, gold and silver are volatile, and have historically been volatile due to the price suppression schemes against them engineered by Central Banks to discourage investors from investing in gold and silver. Remember that I noted above that gold has increased, in US dollar terms by 96.40% since August 16, 2006. How then, have we been able to produce a 281.80% return in our investment newsletter since the later date of June 15, 2007 (in a tax-deferred account)? Simply by understanding how the global monetary system operates and using this knowledge to predict the effects of these price suppression schemes in advance. Commercial investment firms always tell their clients that volatility is terrible and to fear volatility, but the only reason to fear volatility is if you don’t understand what causes it. Of course, whenever volatility occurs in the stock markets, they inform you not to be shaken out of the stock market, because the stock market always goes higher in the long run (a myth we have also deconstructed in this article, unless your investment time frame is 50 to 100 years). When volatility strikes the PM markets, however, they seize this opportunity to label PMs as risky. As long as Central Banks and their governments scheme against PMs, gold and silver will continue to have sharp, scary drops in the future at times. If, however, one understands what causes the volatility in the gold and silver markets, one can actually leverage volatility to one’s advantage.

The myth about volatility in gold/silver being bad while volatility in stock markets is okay is equivalent, on a propaganda level, to the myth about the “safety” of diversification. In this video here, I explain why diversification is more Wall Street propaganda as well. In conclusion, one should know that ulterior motives and ignorance drive commercial investment firms to misinform you that precious metals are a risky investment while stock markets are the safe place to be. Furthermore, the 30, 40, 50-year time frame that commercial investment firms’ gold analysts utilize to belittle gold’s performance is also bogus. When Alan Greenspan was Chairman of the US Federal Reserve, one of his stated missions was to get the world to view the dollar as if it were backed by gold even when it was backed by nothing, and for a while, he succeeded in selling the world the lie of a strong dollar. However, now that this deceit has been revealed to the world, one needs to assess gold as an investment asset under a much more narrow time frame. Unless you figure out that Wall Street has flipped this equation upside down, you’re liable to be hurt very badly in the coming years. Of course, if you’re from Germany, Argentina, Thailand, South Korea, Zimbabwe, or any other country that has undergone a severe monetary crisis that produced bank holidays, runaway inflation, and government pleas to their citizens to hand over their gold, then you don’t need me to tell you this.

About the author: JS Kim is the Chief Investment Strategist and Managing Director of SmartKnowledgeU, LLC, a fiercely independent wealth consultancy company that guides investors in the best ways to build wealth through the progression of this global financial crisis. His investment newsletter, Crisis Investment Opportunities, has significantly beat all major developed stock market indexes since its launch in 2007, outperforming the Australian ASX 200, the UK FTSE 100 & the US S&P 500 by 308.89%, 304.87%, and 300.85% (in a tax-deferred account, cumulative returns for the investment period, June 15, 2007 to May 12, 2010).

A Sign of the Times?

From: Yahoo News

Abu Dhabi Hotel Installs Gold Vending Machine

ABU DHABI — There’s no mistaking what’s in this vending machine. The well-heeled in the Gulf can now grab “gold to go” from a hotel lobby in the United Arab Emirates, when the need for a quick ingot strikes.

On Thursday, a day after its inauguration, the shiny machine attracted spectators of many different nationalities who gathered to watch whenever an enthusiast was struck with the urge to splurge on a bar of the precious metal.

Abu Dhabi’s Emirates Palace Hotel became the first place outside Germany to install “gold to go, the world’s first gold vending machine,” said a statement from Ex Oriente Lux AG, the German company behind the vending machine.

“In addition to one-gram, five-gram and 10-gram bars of gold, the machine also dispenses gold coins,” it added.

Gold rates are constantly updated inside the shiny machine — itself gold-plated — in the hotel’s lobby, courtesy of a built-in computer connected to a dealer which sells gold online.

“This eliminates the risk premiums usually associated with precious metal trading,” the German company said.

Hotel general manager Hans Olbertz said they wanted the hotel to be the first in the world to offer guests what he called “this golden service.”

The Emirates Palace is often used by visiting foreign dignitaries, and its top floor is reserved for the rulers of the UAE federation’s seven emirates, each of whom has his own suite.

 

Louise Yamada’s Projections for the Gold Price

Louise Yamada is one of the most respected technical analysts on Wall Street. When she speaks, it’s a good idea to at least consider what she says.  We’ve taken a screen shot that shows her short term Gold Price projections below…

And here is the full 4 minute CNBC interview…

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