20 Aug 2011

Silver update

I wanted to post a few comments about the Silver market for some of those who have been asking me to do so. As mentioned in previous posts here, silver is finding itself caught in a war between those running out of risk trades who are selling commodities and equities, and those who are buying it as a safe haven metal.

That tug of war has prevented it from surging alongside of gold but nonetheless, even in the face of such selling, it has been attracting enough buyers that its technical chart picture is slowly but steadily improving.

I want to first note that it has regained its footing above the 50 day moving averaage having bounced firmly off of that key technical level last week. Since then it has established a nice little uptrend which has taken it back to the region where it has encountered selling resistance over the last month or so. I am speaking specifically about the region near and just above the $40 level.

If you will also note, all four of the major moving averages that I use in tracking this market, are now moving higher with the silver price ABOVE those ma's. That is bullish. What I would like to see and what it appears that we are likely to soon get, is for the 10 day moving average (blue line) to move up and crossover the 20 day moving average (red line). That would put the market solidly in an uptrend as it will take some stability at these current price levels for such an event in the moving averages to occur.

If, and this is an important "IF" from a technical perspective, silver can close out the week tomorrow on a firm note, preferably with a push through the $41.30 - $41.50 level, it will enter the following week on very solid technical ground and set up a run to the $44 level for starters.

It still has some downside support first near $39.50 which is followed by another level of support near the $38 level. It would have to breach that latter level for a move towards $35 again.

At some point, as gold continues to move sharply higher, silver will become increasingly attractive to value-based buyers as it is still very affordable if one considers the current options in what can be termed "precious metals", platinum ($1845), palladium( $758), and gold ($1835). None of these metals are cheap any longer ( in the sense that the common man on the street can plunk down some loose change for an ounce) making the little grey metal, "poor man's gold", likely to outperform on a percentage basis in the coming months.

19 Aug 2011

The World Is On Recession Watch

The United States and euro zone are "dangerously close to recession", Morgan Stanley said ovenight, criticising policymakers and predicting the European Central Bank will have to reverse its rates policy.
The Morgan Stanley research note, which cut global growth forecasts, was cited by stocks traders as adding to market nervousness over the US and euro zone debt crises and the economic drag of austerity measures in debt-burdened countries.
Deutsche Bank added to the gloomy market tone by cutting its gross domestic product forecast for China, a major growth engine for the world economy.
Morgan Stanley cut its global GDP forecast to 3.9 per cent growth from 4.2 per cent for 2011, and to 3.8 per cent from 4.5 per cent for 2012.
It also predicted the European Central Bank's next interest rate move would be a cut, a sharp contrast to Reuters last ECB poll earlier this month when just one bank of around 50 surveyed -- Australia's Westpac -- forecast a cut next. The ECB has raised its benchmark rate twice this year.
"Our revised forecasts show the US and the euro area hovering dangerously close to a recession -- defined as two consecutive quarters of contraction -- over the next 6-12 months," Joachim Fels, who co-heads Morgan Stanley's global economics team, said in a research note dated Wednesday.
That was not the bank's base case scenario, he said, noting the corporate sector still looked healthy and lower inflation will ease pressure on consumers' wallets, while central banks such as the Federal Reserve and ECB could try to loosen policy further.
"A negative feedback loop between weak growth and soggy asset markets now appears to be in the making in Europe and the US," Fels said.
"Against this dire growth backdrop, we no longer expect the ECB to hike rates. Instead, we now see the Bank cutting rates next year. We lower our refi rate forecast for the end of 2012 to 1 per cent from 2 per cent before."
Economists are beginning to latch on to a shift of view already evident among investors. Traders in financial markets have been moving to price in a cut since the ECB's last press conference on Aug. 4. . Standard Bank said this week it expects the ECB to make its first cut early next year.
Policy errors
Weak growth data from the euro's main economies, Germany and France, has put further pressure on European politicians who have been haggling over ways to stop the bloc's sovereign debt crisis from engulfing Spain and Italy.
The US economy also stumbled badly in the first half and came dangerously close to contracting in the first quarter. High unemployment, a bruising political battle in Washington over the debt ceiling and spending cuts in July and a stock market slump all helped push US consumer sentiment to its lowest level in more than 30 years.
"Recent policy errors - especially Europe's slow and insufficient response to the sovereign crisis and the drama around lifting he US debt ceiling -- have weighed down on financial markets and eroded business and consumer confidence," the Morgan Stanley note said.
It now sees growth in developed market economies averaging only 1.5 per cent this year and next, down from his previous view of 1.9 per cent and 2.4 per cent, respectively.
Growth in emerging market economies will slow to 6.4 per cent this year from 7.8 per cent in 2010, Fels estimated.
This means that emerging market economies -- which now account for half of global GDP -- will generate 80 per cent of the global GDP growth that Morgan Stanley is forecasting for 2011 and 2012, Fels said.
Most economists say they are not cutting their growth forecasts for emerging Asia for now, as the continent is less dependent on exports to Western markets than it was when the financial crisis hit in 2008.
Morgan Stanley left its 2011 growth forecast for China unchanged at 9.0 per cent, versus 10.3 per cent last year, but dialled back growth expectations slightly for Russia and Brazil.
If the West does slump back into recession, or a prolonged period of meagre growth, analysts say China may not be in a position to reprise its role in supporting the global economy as it did in 2008, when it announced a massive stimulus programme.
Inflation unexpectedly quickened in China in July, putting pressure on the central bank to keep prices in check with more interest rate rises even as growth showed signs of cooling.

Read more:

18 Aug 2011

Debt Collapse - The Case For $20,000 Gold

New presentation featuring Mike Maloney on Gold Silver.

I have added it to a different page so it doesnt get lost amongst the pages.



There appears to be a gross misunderstanding about how money moves and whether we face DEFLATION or HYPERINFLATION. In Physics, we are searching for the illusive Grand Unified Theory where the behavioral laws of Physics and Quantum Mechanics will be unified. The laws that govern our world at our level do not apply in the micro world at the atomic structure. The same division exists in Economics and unless you understand that there are two worlds that operate differently, don’t worry, you will never gravitate to an institutional advisor and you will probably lose your shirt expecting that all money will move the same. This appears to have been elevated to the point of extreme nonsense surrounding this S&P Downgrade. Those who keep betting on the collapse of the United States are impatient and fail to realize that even on a Debt to GDP ratio, the USA is by no means at the top of that list but is only #38. But these are statements they hate to hear. Some are so wrapped up in the destruction of the United States, they will probably lose everything they owned insisting they are right but fail to realize you can win the war, but lose all the battles to the point at the end, you have nothing left. The CIA World Factbook that at least compares apples to apples, albeit omitting unfunded liabilities in all countries, places the 2010 debt-to-GDP ratio in the US at 53.9%. The worst on that list of major countries is Japan where in 2010 debt-to-GDP ratio was 225.8% of GDP. The level of public debt in Germany stood at 78.8% of GDP. This shows on an equal comparison basis, the US has the largest debt and economy making it capable to servicing its debt far better than either Japan or Germany. This is vital to understand or you will become lost in the alleyways of your mind trapped by your bias.

Debt to GDP Ratio as Percent
1 Japan 225.80
2 Saint Kitts and Nevis 185.00
3 Lebanon 150.70
4 Zimbabwe 149.00
5 Greece 144.00
6 Iceland 123.80
7 Jamaica 123.20
8 Italy 118.10
9 Singapore 102.40
10 Belgium 98.60
11 Ireland 94.20
12 Sudan 94.20
13 Sri Lanka 86.70
14 Canada 84.00
15 France 83.50
16 Portugal 83.20
17 Egypt 80.50
18 Belize 80.00
19 Hungary 79.60
20 Germany 78.80
21 Nicaragua 78.00
22 Dominica 78.00
23 Israel 77.30
24 United Kingdom 76.50
25 Austria 70.40
26 Malta 69.10
27 Netherlands 64.60
28 Spain 63.40
29 Cote d'Ivoire 63.30
30 Jordan 61.40
31 Cyprus 61.10
32 Brazil 60.80
33 Mauritius 60.50
34 Ghana 59.90
35 Albania 59.30
36 World 59.30
37 Bahrain 59.20
38 United States 58.90
39 Seychelles 58.80

When you have a major portfolio of $50 billion and up, the rules of management change just as a battleship cannot turn around as quickly or as easily as a speedboat. I had advised private portfolios that were as large as a trillion dollars. When you are at that level, you need cycles because you have to start to shift direction ahead of the turning point and in a gradual manner. You cannot pick up the phone and say SELL AT THE MARKET! How you manage money at the upper echelon of finance is completely different than managing your own personal portfolio. People who judge the BIG money the same as they would a personal account simply have no idea of how the global economy is structured. They are looking at the TV images and have no clue what exists behind the curtain.
Between 1980 and 1985, the fundamental movement behind the markets was PRECISELY opposite of the bias. This period proved beyond a shadow of a doubt that sometimes being so BEARISH and convinced the USA was going to default, the opposite takes place driving the dollar to record highs into 1985. The more BEARISH Europeans became, the more the BULLISH dollar became! How was this possible? The number ONE question I received at seminars throughout Europe during that period was: Would the US adopt a two-tier monetary system? The US national debt in 1980 hit $1 trillion and that sent shockwaves that fueled the bears on the USA which surfaced when Nixon closed the gold window on August 15th, 1971. The sentiment was that the world would not survive the floating exchange rate system and this would lead to hyperinflation giving a boost to the bull market in gold into 1980. However, as the debt reached $1 trillion, Europeans became convinced that the US would create two dollars and default on the dollars held outside the USA in the Eurodollar market. Since both were now $1 trillion, in their mind the US could default on foreigners at no expense to its domestic citizens. An example was South Africa which had the Financial Rand (external) and the Rand (domestic) at that time.
Europe judged America by itself and its own domestic biases. I had to explain numerous times that if I even asked an American about a two-tier dollar monetary system they would look at me like I was crazy. Americans NEVER experienced a two-tier currency and the dollar except a brief period during the 1870s when there was an international Trade Dollar minted at 420 grains of silver compared to domestic silver dollars at 412.5 grains. These Trade dollars facilitated trade with Mexico and China and the coins had to weigh the same as foreigners used or else the dollar would not be acceptable in payment except at a discount.
Other than this brief issue, Americans are traditionally ignorant of monetary systems other than the dollar and nothing else. This has been caused by the distinct difference between American history and European. The dollar is still legal tender from the birth of the nation. That is not true in Europe. French francs are not valid pre-World War II and that is even the case in Britain where old issues are simply cancelled. The USA has never cancelled its currency. Consequently, talking two-tier monetary systems in America will only produce strange looks and may get you carried off to the funny farm for examination.
Fiercely biased that the US would default, Europeans convinced themselves that a two-tier monetary system would be the answer to the debt by paying off the debt with a new external dollar. It made sense to issue an external dollar that was red and the green dollar would still be domestic. That being the popular belief, capital shifted from the Eurodollar deposits to domestic dollar deposits. The Eurodollar market collapsed by about 50% and the more convinced they became the US would default in this manner, the more they bought the dollar and moved capital into domestic deposits. The dollar rose to record highs driving the pound down to $1.03 and German currency down to about 4 to the dollar (in today’s terms about 4 euro to the dollar).
This obsession with the US collapsing has been going on a long time. If you just want to listen to the nonsense that supports your bias, then there are plenty of street hawkers out there that will tell you what you want to hear. If you are trying to comprehend what REALLY makes the world tick, then stick around. This just ain’t Kansas anymore Dorothy.
There is a danger of a MASSIVE WORLD DEPRESSION perhaps far greater than the HYPERINFLATION scenarios. The presumption of hyperinflation is based (1) that money is not backed by gold, and (2) somehow government will print uncontrollably. There are rising forces in the wings that counter-balance that notion. In Germany, the national philosophy is etched in its soul by its hyperinflation of the 1920s just as everything Americans believe is etched into their soul by the Great Depression. The USA fears a depression and monetizes to desperately try to stimulate, while Germany imposes austerity to prevent a hyperinflation that is evident in the economic decline in growth just released. However, the core of the Republicans are echoing the same policies of Herbert Hoover to return to a balanced budget, cut spending, and throw the baby out with the bathwater. The Democrats want stimulation as they did under FDR and had been the battle cry of the Silver Democrats of the later 19th Century. We are all defined as a nation by our collective experience.
There was a net selling of US Treasurys by foreign holders leading up to the infamous August 2nd date. But this is the "hot" money, not the BIG money. You simply CANNOT park the big money in just anything overnight. You cannot abandon the dollar easily for to do so would mean you cannot engage in commerce (buying oil) or trading in the markets. You cannot put up Swiss bonds for collateral at COMEX. There is an infrastructure that requires dollars and will continue to do so UNTIL we revise the world monetary system. That is what I am talking about, when we are forced to a ONE WORLD RESERVE CURRENCY to replace the dollar. That is inevitable. However, we have to experience a lot more pain before the politicians will consider the loss of such power.
If you want to know when the world is coming to an end, then you better start to learn that there is the BIG money and then there is the small time HOT money that can swing back and forth quickly and acts like the speedboat that can sail circles around a battleship. But when that battleship turns, the speedboat will be crushed if it tries to keep sailing ignoring the battleship.

The key to understanding the world is that capital flows like water to the lowest spot but in finance it is the lowest risk and right now that is the dollar. Here are the illustrations of capital flows for the Great Depression and the 1987 Crash focused on Japan. Note that the capital inflows peaked in 1927 when the Fed cut US rates trying to deflect capital back to Europe. The capital outflow peaked in 1931 with the Sovereign Debt Default. The capital flows switched back to a positive inflow AFTER the Roosevelt devaluation of the dollar in 1934 and the threat of war was building. Looking at Japan-US capital flows, we can see how highly volatile they became going into 1987 and the fears then also of a further dollar devaluation of 40% imposed by G5 market manipulations. If you ignore global BIG money and understanding how it moves differently, you are asking to be slaughtered.
The greatest problem during the Great Depression was this idea that to solve the problem meant austerity to restore confidence in government and the dollar. That creates economic contraction. This will lead to civil war and strife as we are watching in Greece and England, just as it appeared in Washington, DC in 1932 with the Bonus Army. In San Francisco government proves America is no different than Syria or any other dictatorship. The first US government agency cut off cell phones to thwart a protest. This is precisely what Congress is doing with the SWITCH to be able to shut down the internet they claim to thwart a terrorist attack. The terrorist definition is now you if you dare to disagree with government. San Francisco’s Bay Area Rapid Transit blocked a planned protest on Thursday August 11th that was being organized against the latest police shooting of an unarmed man by cutting cellphone service. This proves my point. The government does whatever it wants when it wants and it is ALWAYS the burden of the citizen to prove in court AFTER THE FACT that he has any rights at all including free speech and the right to assemble peaceably. Until government has to go to court to ask PERMISSION BEFORE it acts, the Constitution is a worthless piece of paper that has NO force of law and when government stacks the courts with former prosecutors, there is NO rule of law to hold society together anymore. All governments turn against their people WITHOUT exception!
The long bonds in the US peaked in 1927 and collapsed into 1932. There was the initial flight to quality we always see when the stock market began to crash in 1929. However, as it began to become clear there was a looming Sovereign Debt Crisis brewing the bonds began to collapse as we can see from late 1930. Even though the USA did not default, the bonds fell in ANTICIPATION that it might. This demonstrated what I have stated many times – SELL THE RUMOR, but BUY THE NEWS!
It does not matter what at times the reality of economics might be. If everyone BELIEVES something, they will act on that belief even if it is dead wrong. The counter-balance against the HYPERINFLATION scenario is the same risk of balancing the budget. We are seeing this in the Republican rhetoric and it is why Germany is fighting a single debt for Europe. The threat we face in a Sovereign Debt Default scenario is more of the destruction of capital and that is DEFLATIONARY rather than inflationary. So people cheering the downgrade of the US debt had better be careful what they wish for. If the debt structure collapses BEFORE reform (more likely than not), this will wipe out the pension funds, insurance companies, and banks. The debt will be suspended and at that point the challenge will be putting it back together before CIVIL WAR. But then again, San Francisco has shown what government will do. This is just a dry run for the ultimate confrontation. Just remember – you elected these people that enact laws against you and refuse to reform a system that is patently defective and is going to collapse as certain as we will all die.
The assumption of HYPERINFLATION is government will respond with printing. The rising alternative is the crowd calling for a balanced budget honoring debts at the expense of eliminating social spending. In any event, we are headed into an economic storm where the sun doesn’t shine on the horizon. For all the conspiracy theories that convince the world some brilliant men are planning everything, when my phone rings, why are they asking me what’s happening? The sad truth is far worse. When you pull the curtain back, you suddenly find smoke and mirrors with nobody in charge and the whole thing is really just a runaway train and there is no conductor. That is much more dangerous than some enlightened group with a plan. The system is out of control and we are headed into a death spiral that leads nowhere you want to go. Gold will rise in value either way. For when capital is destroyed, then we are back to a barter system where gold still holds value. So it does not require HYPERINFLATION to create a bull market in gold. That can also take place during DEFLATION where assets values decline against gold. Hence, the leaders of France and Germany are pushing all 17 nations that use the euro to enshrine balanced budgets in their constitutions and want greater collective governance of the eurozone. This is the same austerity that created the Great Depression. They are obsessed with trying to maintain confidence of the big money. They will fail in the end. For the Dow to retain some strength, it needs to close above 11228 today and to just stay neutral. Resistance in gold today stands at $1785 and a failure to close above that will keep it in a neutral position.


17 Aug 2011

“The Sequel”: How 2011 Is A Repeat of 2008—Only Bigger, Longer, and Uncut by Bailouts

I might have missed it, but I don’t think anyone has noticed this simple truism:
The structural causes that led to the Global Financial Crisis of 2008 are identical to the structural causes that are leading us to another systemic financial crisis in 2011.
The only difference is the kind of debt at the core of the looming crisis: Mortgage-backed securities in 2008, as opposed to European sovereign debt in 2011.
And of course, the debt hole in 2011 is bigger than in 2008—a lot bigger.
That’s why I am confident in predicting we are about to have another Global Financial Crisis—I’m calling it The Sequel: Same movie, same players, same story. Only this time around—like all good sequels—the financial crisis we are about to experience is going to be bigger, longer, and uncut by bailouts.
By the way, that is the key difference between 2008 and 2011: We’re not going to have a Hollywood Ending this time around. The governments of Europe and the United States, as well as their respective central banks, do not have any weapons to fight off this 2011 financial crisis, as they did in 2008, for the simple reason that they used them all up—they’re out of bullets, both monetarily and politically.
So when The Sequel hits the big screen, there won’t be a Big Daddy Government deus ex machina to come save the day in the third act twist. When The Sequel hits, we’re on our own.
Let’s discuss the structural similarities between the original and The Sequel:
In both 2008 and now 2011, you had unpayable debts at the center of a fragile financial system. In 2008, it was mortgage backed securities and collateralized debt obligations—the so-called “toxic assets”. I think we all know that story pretty well.
In 2011, we have European sovereign debt. And just like the toxic assets of 2008, the Euro-bonds might have been rated AAA, but they certainly aren’t blue-chip—they are more like brown-chip: That deep brown color peculiar to fast-sinking dog-turds.
In both 2008 and 2011, these unpayable debts—emitted over many years, accumulating silently and asymptomatically like plaque in the arteries—gave a false sense of prosperity in the years leading up to the respective crises.
In the lead up to 2008, the MBS’s and CDO’s gave the American homeowner a sense that their house was their personal private ATM sitting on their quarter-acre suburban lot. They also were a profit spigot for the financial sector, which bouyed the U.S. GDP growth, leading to a false sense of national prosperity, even as there were signs that the non-financial sector of the economy was diving.
In the lead up to 2011, on the other hand, the sovereign debt of the eurozone countries gave the European citizens a sense that they could afford to buy all the imported goods they could ever want, as well as the sense that their government could afford to pay for all the social welfare programs they were all promised—without having to pay for any of this by way of higher taxes. Hell, that was the entire Labour governments’ platform between 1997 and 2010: Blair and Brown gave the UK a welfare state and low taxes—all paid for with sovereign debt.
In both 2008 and 2011, you have banks exposed to these bad debts both directly and indirectly—and this exposure in 2011 threatens to topple the entire financial structure, just as it almost did in 2008.
In 2008, the financial institutions with direct exposure to the toxic assets—that is, the institutions that actually owned these crap bonds that would never be paid in full—were mostly American banks. Their capitalization depended on how pristine these toxic assets were. As it became increasingly clear that the toxic assets were exactly that—toxic—the banks holding this crap found themselves not only without the capitalization to pass regulatory muster, but in fact found themselves functionally insolvent—hence the suspension of FASB 157, coupled with the injection of $150 billion worth of capital by way of TARP.
In 2011, the financial institutions with direct exposure to toxic assets—in this case, the European sovereign bonds, especially from the PIIGS—are once again banks, this time around mostly European banks: UniCredit, Société Générale, Dexia.
Like 2008, these assets might be rated triple-A, but they’re dog-turds—and they threaten these banks with insolvency, if any of them default. A bankruptcy of any of the aforementioned European banks would have massive consequences for the rest of the global financial construct—it would not be a Europe-only problem, just as the bankruptcy of Lehman was most definitelynot an America-only catastrophe.
And that’s just the direct exposure to the 2011 version of toxic assets.
The real danger in 2011 is the indirect exposure—that is, the liabilities that are triggered in the case of a debt default: Just like 2008.
In 2008, it was AIG and other assorted credit default swap sellers that got hit bad, when the toxic assets began to default—we all remember how the very ground we trod rocked as AIG stumbled and everybody had a collective nuclear-meltdown freak-out.
In 2011—you guessed it—it’s worse: We have Bank of America for sure has massive exposure to derivatives on European sovereign and debt, as well as . . . God Knows who else.
Why do I say “God Knows who else”? Because just like in 2008, the derivatives market is so opaque—not to say hermetic—that we are not going to know who’s going to go bust until it actually happens. In 2008, Hank Paulson and the Treasury Department didn’t find out about the AIG hole until the weekend before the company would go bust. Today, in 2011—even with the experience of how potentially deadly ignorance of the derivatives markets can be—there are no mechanisms in place to swiftly and accurately tally who has derivatives exposure to any particular bond or asset.
In other words, Tiny Timmy and Bailout Benny never implemented the one lesson learned from 2008: Make the markets transparent, so that you can see where the crisis is coming from before it falls on top of your head.
Thus they—and we collectively—are flying blind insofar as derivatives written on the European sovereign debt. We only know about BofA’s massive CDS exposure indirectly, through Timothy Geithner’s demand in December 2010 that Ireland not default, because of the massive losses an Irish sovereign default on BofA.
Bernanke and Geithner had the chance to regulate this vital piece of the financial markets—but they didn’t! Instead, they acquiesced to this ridiculous pseudo-“ideology” that we should not regulate the financial markets.
(Parenthetically, and speaking as a hard-core, anti-choice, anti-vegan, pro-gun, pro-red meat Conservative: I am sick and tired of the ignorant assholes who say, “All government regulation is bad! Let the free markets reign!” We have the government regulate various industries and products because it is necessary for our individual and collective safety—or would you rather the government never regulated, say, the water supply, car safety standards, housing standards? Would you prefer it if the FDIC ceased to exist, and your local S&L could go to Vegas and play the roulette wheel with your life savings? Certainly not. Not only do we need government regulation for safety standards, we need regulations to prevent unscrupulous exploiters from gaming the system—think Enron, which should have put paid to any ridiculous notion that “the market knows best”, but obviously hasn’t (or else I wouldn’t be ranting here): The Enronites of the “energy trading desks” exploited the free markets and the lack of government regulation in the so-called “energy markets”, and deliberately created rolling blackouts in California so as to gouge the people of that state for the electricity they already owned and which they should have been getting, but which the Enron bastards were manipulating in order to squeeze them for money. Insofar as the financial markets are concerned, anyone spouting that particular bullshit spiel about the markets knowing best is either a shill for the banks, or a complete and utter imbecile. And a bank shill at least has the excuse of needing to pay the mortgage in exchange for spouting this nonsensical bullshit—the imbecile does not.)
Now, I used to write for the movies—I can tell you the secret to writing a good sequel: Use the exact same elements, the exact same story structure—hell, even use the exact same lines!—but make sure the sequel is bigger: Bigger sets, bigger explosions, bigger stars, bigger everything—a bigger bang for the buck.
2011’s The Sequel is certainly going to deliver that bigger bang—because it’s a lot bigger than 2008: The total sovereign debt of the PIIGS is about €3.1 trillion. That’s 20% of the eurozone’s GDP—just the PIIGS, just those five, forget about France, Belgium and the UK, which if added up easily doubles that €3.1 trillion figure.
Compare that to 2008, when the total toxic assets the Federal Reserve wound up having to buy amounted to about $1.5 trillion—about 11.5% of the U.S.’s 2008 GDP.
In other words, the current situation is over twice what 2008 was—and might wind up being four times the 2008 price tag. And that’s just the nominal value of the toxic debt at the core of the current situation. We have no idea what the total value of the indirect exposure via derivatives is going to add up to.
So! We’ve seen that we’re structurally at the same place we were in 2008: Unpayable debts held by a fragile financial sector, with massive indirect exposure by way of derivatives that no one has bothered to tally up and regulate.
We have furthermore seen that—like all good sequels—2011 is going to have a bigger bang: We currently have more debts on deck than in 2008, at least twice as much, as a matter of fact.
Question: Why does teasing out these similarities matter?
Answer: Because it will allow us to see what will happen over the months of September and October, when the crisis breaks.
What we’ve seen over the last couple of weeks is not the crisis—or not the crisis, at any rate. We’ve seen Italian and Spanish debt drop, their yields spiking—we’ve seen gold run up to $1,820—we’ve seen the biggest drops in the US equities markets since 2008—
—but these gyrations are not The Sequel. Rather, these last couple of weeks of market gyrations have been the forewarnings—the pre-tremors. Anyone who’s lived in earthquake country knows about them: The little tremors and hiccoughs that precede The Big One.
The Sequel will actually get going once we have our Lehman-like event.
In 2008, the bankruptcy of Lehman Brothers triggered the crash—but it was not the cause of the Global Financial Crisis of 2008: The structural weaknesses were already baked into the situation—the Lehman bankruptcy was just the shove the global financial system needed to fall off the proverbial cliff.
Today, we are waiting for the Lehman-like event. My personal guess is Dexia will be the first to go under, the Lehman-like event that will trigger The Sequel—but that’s just a guess. More likely than not, the Lehman-like event of 2011 will catch us all by surprise—but just like the Lehman bankruptcy, it won’t matter intrinsically: It’ll only matter insofar as it triggers the cascade of panic-default-bankruptcies, etc.
Be that as it may, at my paid site, The Strategic Planning Group, we’ve been discussing what to do, when The Sequel hits. I won’t bother recapitulating what I’ve written there—frankly, it’s too long, and besides, the details are why the SPG Members pay their dues.
The one issue I will discuss here is the notion of a safe haven:
In 2008, when all the stock markets were going south, and all the name-brand banks were teetering, where did everyone park their money? What was the safe haven?
Treasury bonds. In fact, the flight to safety was so massive that Treasuries reached negative yields, when you factored for inflation.
Treasuries are the traditional American safe haven. But what with the recent spate of, er, questionable events (Debt celing conniption fit, anyone?), Treasuries aren’t looking as safe as they used to, nevermind the (cosmetic) S&P downgrade of their Treasuries rating.
But this isn’t an American crisis—this is a European crisis that will have catastrophic consequences in America—but the epicenter will be Europe.
What’s the safe haven in Europe? Gold.
In fact, in Europe, sovereign bonds have never been considered a “safe haven”, for the simple reason that sovereign debt in Europe has countless times suffered haircuts, defaults, outright national bankruptcies.
Since this will be a European sovereign debt crisis that will spread around the globe—but the epicenter of which will of course be in Europe—bankers and asset managers will pull their cash—euros—out of whatever they think is risky, and park it in some safe haven.
These European money men obviously cannot sell their assets and buy US Treasury bonds with those euros that they get. And they certainly won’t plug those euros into European sovereign debt, which is exactly the source of the panic. They won’t even park those euros in German bunds, for fear of contagion.
Therefore, it is reasonable to infer that, if and when there is a Lehman-like event in Europe that triggers The Sequel, the flight to safety will be to gold, which Europeans traditionally see as a financial refuge as surely as Americans consider Treasuries their financial refuge.
Hence in my estimation, gold will rocket on. I would not be surprised if gold crosses $2,000 an ounce when the Lehman-like event happens, and goes on quickly to $2,500 before the end of the year. On my scale of augury, this is head-and-shoulders above a Strong Hunch, just shy of a Fearless Prediction: $2,500 by the New Year’s. After that?

16 Aug 2011

Gold $15,000 an Ounce: Mike Maloney and Robert Kiyosaki

This is an old video, but the same principles apply. As a matter of fact, you can see that things have only continued on the path that they lay out here. In this historical "New World" economy, all of the FIAT currency being printed worldwide is causing a currency bubble like never seen before.
What is the dollar doing?
How can you protect yourself from runaway inflation?

Robert Kiyosaki and guest Mike Maloney discuss how history gives you information on the future.

Think Gold is Not Manipulated? Think Again!

On Wednesday August 17th the CME came out with an announcement that they would be raising margin rates on the purchase of future contracts on gold. They reported that this was an effort on their part to cool off the price of gold which has enjoyed a parabolic run since August 1st. They said that there would be more rate hikes to protect gold from becoming a bubble. When I read this I laughed at the arrogance of the CME. There is only one reason that that they want to stop gold's parabolic run. They simply do not have enough gold to fulfill the future contracts that they have already sold. Let's not forget that one future contract is sold in lots of 5,000 ounces. That means if we use a proxy price if $2,000 an ounce, to make the math simple, we are talking about $10 million for one contract. Add to that, the CME gets a fee of $50.00 an ounce above the spot price, so for every contract sold they earn $250,000.00. Delivery and shipping are the buyers concern. This would lead me to conclude that the only possible reason to slow down gold's parabolic run would be that they simply do not have the gold to satisfy the contracts sold.
Let us also not forget that last April the CME raised the margin rate on silver not once but five times to get silver to finally capitulate. The fact is that the CME does not have the physical gold to satisfy the future contracts that have already been sold. Do you really think this will play out differently than it did with silver last April? Some may call it a bubble but I do not agree. Call it whatever you want. The fact remains that there is simply not enough gold to satisfy the thirst for the prospective buyers.
George Soros, the hedge fund investor who called gold the ultimate bubble, has divested his portfolio of nearly its entire investment in the gold, inciting many to fear that the price will very soon plummet, devaluing the specie-heavy portfolios of millions of investors.
Agree with him or not, like it or not, like him or not, attention must be paid to his movements. It can be very expensive to ignore the predictions of Soros. For example, on September 16, 1992 (a date subsequently known as "Black Wednesday"), one of the investment funds of Soros sold short more than $10 billion worth of pounds sterling, profiting from the British government's reluctance to adjust its interest rates to levels comparable to those of other European Exchange Rate Mechanism countries. Defiantly, the UK withdrew from the European Exchange Rate Mechanism, triggering an unsettling devaluation of the pound. Not everyone was harmed by this plummet, however. George Soros earned over $1 billion in the ordeal. Consequently, he was described by the media as the man who broke the Bank of England. In 1997, the UK Treasury estimated the cost of Black Wednesday at 3.4 billion pounds. This latest move to take a position against gold may have similar repercussions around the globe.
Soros, the Hungarian-born financier made the move to cut his holdings of gold only in the first quarter of 2011. As with most things this King Midas touches, the price per ounce of gold had skyrocketed during the period of his investment in it. While at the beginning of last year gold was trading at $1,100 an ounce, the trading price in 2011 has risen to as much $1,800.
The exact date of the dramatic divestment by Soros is unknown. It is known that the majority of those holdings are managed through the Soros Fund Management Company. Filings to the Securities and Exchange Commission (SEC), the American regulator showed that he had sold 99% of his holding in the SPDR Gold Trust (GLD), an exchange-traded fund (ETF) backed by gold bullion, by the end of March. The New York-based fund sold its entire holding in GLD but Mr. Soros bought shares in two mining companies, Freeport-McMoRan Copper & Gold and Goldcorp.
Despite the potential for a devastating global impact of such a move by one so influential, there are those on Wall Street praising the insight of Soros. Historically, it is typical that as the precious metals rally ends, you will get transition toward related equities. Indeed, the gold mining stocks have lagged the underlying asset as people would rather hold gold and silver above the ground rather than these metals still in the ground.
As I write today it looks like Mr. Soros did not get this one right and there are those not entirely convinced of the wisdom of Mr. Soros.
Filings to the SEC showed that Paulson & Co, the US hedge fund run by John Paulson, left its holding in the SPDR Gold Trust (GLD) unchanged. It was reported in Bloomberg online that Hal Lehr, a commodity trader at Deutsche Bank, said he remains bullish on gold despite its current levels and believed it could reach $2,000 an ounce by year's end. The report went on to say that gold ETF holdings fell by 3.3 percent in the first quarter of 2011 and there are reliable indications that some of that investment was used to purchase physical gold bullion.
As if there is not enough uncertainty, a worldwide devaluation of gold could create a ripple of financial insecurity. There can be no doubt that gold is viewed by a majority of the world as a very safe and trustworthy investment, one that only increases in value. This sort of reasoned speculation has undoubtedly fueled the bullish ballooning of the price per ounce of the metal.
If the actions of Mr. Soros and other global power brokers have the effect of devaluing gold, then the legitimacy and appeal of the call of many to return to a gold standard for the value of paper currency or to abolish the Federal Reserve and other similar central banks around the world will be similarly devalued.
Once the worth of both gold and paper currency is wiped out by the conspiring plotting of financiers, globalists, multinational corporations, central bank boards, and other likeminded and equally influential monied interests, there will be nowhere to turn for an object of value. This complete obliteration of precious metals and paper currencies will leave those who create such catastrophes as the sole site of economic refuge for those cast headlong into the storm of boom and bust cycles and the devastation that comes in their wake.
One of the most toxic elements present in this pool of bitter water is a worthless money supply. The Federal Reserve creates this non-potable problem by engaging in a practice known euphemistically as quantitative easing. It is a policy that plain-speaking men would call printing worthless money.
There is no governor on the engine of the Federal Reserve's printing press and the speed with which it can crank out reams of worthless paper money is dizzying. However, unlike paper money, gold cannot be manufactured and it is of finite quantity. While this bodes well for the eventual rebound of the price of gold (assuming that it soon begins to descend), there can be little expectation that those who benefit most from a world marketplace dependent on dollars and pounds will allow gold to supplant these currencies as the coin of the realm. From their point of view, access to that resource must be restricted and dependence on printed money must be perpetuated.
The current debt crisis in Europe is an example of how the price of gold can benefit from currency's shortfall. The millions upon millions of dollars owed by Greece, Ireland, Portugal, and others in the eurozone devalues paper currency while artificially (perhaps) propelling the price of gold into the stratosphere.
That said, there is a good chance that any effort to sell off holdings in the precious metal by George Soros and others may convince others to dump their own investments in gold rather than run the risk of being found on the outside of the trade looking in.
In fact I'm sure this is exactly what that cagey cat George Soros is betting on.

15 Aug 2011

The Rest Of The World Is Calling For A New Global Currency

For decades, the U.S. economy was so dominant compared to the rest of the world that nobody really even challenged the status of the U.S. dollar as the reserve currency of the world.  But now that U.S. government debt has been downgraded, the U.S. dollar is showing significant weakness and the U.S. economy continues to crumble, the rest of the world is questioning whether the U.S. dollar should be allowed to continue to have such a privileged position in the global marketplace.  Politicians all over the world are now openly calling for a new global currency to replace the U.S. dollar in international trade.  In fact, we are already seeing a shift away from the dollar in many areas of the globe.  A decade ago, the U.S. dollar made up approximately 70% of all foreign exchange reserves around the world.  Today, that figure is down to about 60%, and it continues to fall.  As the debt problems of the U.S. government get even deeper, and as the U.S. dollar loses even more strength, the calls for a truly global currency are going to grow even louder.
Right now, the global financial system is still based on the U.S. dollar to a very large degree.  But dissatisfaction with the status quo is growing around the world.  Many are blaming the United States for the massive financial problems that we have had in recent years.
Many global politicians these days seem quite eager to jump on any chance to criticize the U.S. financial system.  In particular, the recent downgrade of long-term U.S. government debt by S&P has provided plenty of ammunition for international proponents of a new global currency.
The largest bank in Saudi Arabia, National Commercial Bank, recently had the following to say about the U.S. dollar....
“The size of the US economy and its treasury market and the dollar's status as a reserve currency make it impossible to find a historical parallel for the current situation. However, being the world's reserve currency, the US dollar now appears inconsistent with an AA+ rating.”
China's official Xinhua news agency has been brutally attacking the U.S. financial system in recent days.  The following is one example....
"The only way the Americans have come up with to improve economic growth has been to take on new loans to repay the old ones."
In fact, Xinhua has even gone so far to suggest that U.S. monetary policy should be under "international supervision" and that a new global reserve currency should be created....
"International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country."
The Russian government has also been a vocal proponent of a shift away from the U.S. dollar.  At a G8 summit back in 2009, Russian President Dmitry Medvedev openly spoke of the need for a new global currency and he evenshowed reporters a coin that represented what a "united future world currency" could potentially look like.
But it is not just individual nations that have been calling for a change.  Over the last couple of years, the United Nations has repeatedly called for the U.S. dollar to be replaced as the global reserve currency.
For instance, a UN report entitled "The U.N. World Economic and Social Survey 2010" openly talked about how the transition from the U.S. dollar to a new global currency could be accomplished.  The report made very few headlines around the world, but Americans need to understand that the UN itself is openly plotting to dethrone the U.S. dollar.  The following is a brief excerpt from the report....
"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency"
The IMF has also been instrumental in promoting the idea of a new global currency.  In a recent report entitled "Enhancing International Monetary Stability—A Role for the SDR", the IMF discussed the "problems" with having the U.S. dollar as the reserve currency of the world and it postulated that a larger role for SDRs (Special Drawing Rights) could potentially be an important step toward a true global currency.
In fact, the report described SDRs as "an embryo" from which a new global currency could ultimately develop.
So what would a global currency look like?
While he was still head of the IMF, Dominique Strauss-Kahn openly called for the introduction of a global currency backed by a global central bank which would act as the "lender of last resort" in the event of a severe economic crisis....
Finally, in principle, a new global currency issued by a global central bank, with robust governance and institutional features, could provide a nominal anchor and risk-free asset for the system independent of national currencies. This global central bank could also serve as a lender of last resort.
But is that what we really need?
A global currency issued by a global central bank?
Such a system would not be accountable to American voters whatsoever.
Not that the Federal Reserve is accountable to us right now, but at least there is some hope of abolishing the Fed under the U.S. Constitution.
Under a global central banking system, the American people would have essentially no power over the monetary system and the international bankers would have almost all the power.
Of course that is what the international bankers have always wanted - complete control over the financial system of the entire world.
Sadly, it seems as though whenever financial problems arise these days, the solutions we are given always involves more centralization of financial power.
There seems to be a growing consensus among the ultra-wealthy and the global elite that a one world financial system is what we need.  But getting there will not be easy.  The U.S. dollar is not dead yet, and much of the rest of the world has grown accustomed to using it.
However, if the U.S. dollar were to "collapse", that could create a crisis which would give the global elite the excuse they need to push us in the direction of a truly global currency.
Let's hope that nothing like this happens any time soon.
Could you imagine living in a world in which you were unable to buy or sell unless you participated in the global currency system?
That is a frightening thing to think about.
Our world is changing, and not for the better.
A global currency would be a really, really bad idea.  Hopefully we still have some more time before one gets rammed down our throats.

World Bank Warns against Future Economic Hardship

World Bank President Robert Zoellick
Amid the ongoing financial crisis in the United States and Europe, World Bank (WB) President Robert Zoellick has warned that more dangerous times will be ahead for the global economy.

"In the past couple of weeks, the world has moved from a troubled multi-speed recovery to a new and more dangerous phase," Zoellick told the Weekend Australia newspaper on Saturday.

He also said the eurozone's sovereign debt issues were more troubling than the medium and long-term problems that led to the downgrading of the US's rating by the credit ratings agency, Standard & Poor's last week.

"We are in the early moments of a new and different storm, it's not the same as [the] 2008 [financial crisis]," he added.

The head of the World Bank urged the European leaders to approach their debt problems with a greater sense of urgency.

"The lesson of 2008 is that the later you act, the more you have to do," Zoellick said.

He also questioned whether troubled European nations could "ever get ahead of the problems that have plagued them."

Zoellick pointed out that the world is now involved in redesigning the international financial system and that power is moving rapidly to fast-growing nations like China. 

40 years on from the Gold Standard: $2000/oz Gold Shortly

“Gold bugs” are fervent fans of the precious metal who have clung to its investment value for three generations and now glow in the reflected lustre of a record price approaching $2,000 for just one ounce.

“Gold bugs” are fervent fans of the precious metal who have clung to its investment value for three generations and now glow in the reflected lustre of a record price approaching $2,000 for just one ounce.


Gold, and only gold, will be our salvation when the value of companies, banks, countries and even money itself melts away. Gold, not shifting currencies, is the foundation of wealth and security. Gold is back, for good.

This is the song of the “gold bugs” – the fervent fans of the precious metal who have clung to its investment value for three generations and now glow in the reflected lustre of a record price approaching $2,000 for just one ounce.

Today will mark the 40th anniversary of the United States’ abandonment of the gold standard. But gold bugs kept the faith – even when prices stayed under $500 for nearly 25 years after their 1981 peak.

Their passion derided, dismissed as hopelessly out dated doomsayers, their love for the metal seemed irrational.

The gold bug label itself goes back to master of the supernatural Edgar Allan Poe and his story of that name, a tale of golden beetle whose bite sends the hero to a chest of gold and jewels.

It reappeared as one of the first campaign buttons – a brass bug sported by supporters of William McKinley in the bitter U.S. presidential election of 1896.

McKinley, the first presidential candidate to barnstorm across the nation, backed the gold standard against his Democratic opponent’s proposal that it should be joined by silver in a fixed ratio. Loser William Bryan slipped into history but bimetallism lived on for a little in the think tanks of the day.

Fast forward and the financial crisis of 2008 has made gold the darling of investors from hedge funds to taxi drivers, and sparked a near-doubling of prices.

“Gold has been rising against all national currencies, and that’s significant,” James Turk, founder of bullion dealer Goldmoney, said.

“When there are problems with a national currency ... people begin to worry about the value of their money, whether they’re going to lose purchasing power because of inflation or other problems. As a consequence, they look for safe havens.”

He was speaking as a true gold bug – not in the dark days after Lehman Brothers’ demise in 2008, nor in the depths of last year’s euro zone debt crisis, nor after Standard & Poor’s recent downgrade of the United States’ top-notch credit rating.

Turk’s view came in a BusinessWeek interview he gave in 2005, well in advance of the current financial crisis.

“My long-standing forecast, made in a Barron’s interview in Oct. 2003, is that $8,000 per ounce will be reached sometime between 2013-2015,” he told Reuters this week.

“I’ve stayed with that forecast over the years and see no reason to change it.”

The world’s current financial woes are only going to get worse if current policies continue, he believes, meaning the rally in gold prices is unlikely to stop here.

“Politicians and central bankers are making decisions that debase national currencies, and the resulting bad monetary policies they are following are causing the gold price to rise,” he said.

Gold’s latest push to record highs has gone hand-in-hand with a plunge in Wall St. stocks to their lowest in nearly a year, while the dollar is languishing near multi-year lows.

Long-term gold bull David Beahm, vice-president of marketing and economic research at New Orleans bullion dealer Blanchard and Co., says worries over the stability of the stock markets will be a key driver of higher gold prices.

“The best investment right now is gold,” he said. “By diversifying one’s portfolio with a negatively correlated gold, investors can protect themselves from deep plunges in the equity market.”

“There is no news in the market today or over the coming few months that is likely to stop the current gold bull market, as the fundamentals are firmly in place for gold to continue its rise,” he says.

Traditional investment commentators have dismissed gold – which, with no “intrinsic” value of its own, is only really as valuable as a buyer thinks it is – as a classic bubble.

But those who have predicted its crash since it rose above $700 an ounce in 2006, on a simple “what goes up, must come down” analysis, have consistently been proved short-sighted.

Gold prices traded in a relatively narrow range from $250-$420 an ounce for the whole of the 1990s. They have since more than quadrupled from that high, peaking at a record just below $1,800 an ounce this week.

Their rise accelerated sharply from 2005 onward, breaking through $1,000 an ounce in 2008 as the weaker dollar fuelled demand for alternative stores of value.

Gold bulls are predicting that prices, around $1,750 an ounce, but still short of an inflation-adjusted high of nearly $2,500 in 1980, could climb even higher.

“I believe the price of gold will rise irregularly over the next several years, possibly reaching $1,850 an ounce by the end of this year, breaking above $2,000 in 2012, and possibly $3,000, $4,000, and even $5,000 in years to come,” says Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic adviser to Rosland Capital.

“At the heart of this forecast is my observation (or belief) that the United States and, to a lesser but still significant extent, Europe have been living beyond our means for decades.”

Back in 1896, losing presidential candidate Bryan’s Cross of Gold speech turned the watching crowd into “a wild, raging irresistible mob,” the New York Times reported.

Gold bugs, often accused of sensationalism, are finding their passion is becoming mainstream. “Raging” is probably no longer a suitable description of them. “Irresistible” is increasingly nearer the mark.