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
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:
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.
“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?
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…