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How to Prepare for When Money Dies
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Developing Economies Driving Super-Cycle
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The Reuter's CRB index reached record levels in 2010 – why?
“Super cycles are extended periods of historically high global growth, lasting a generation or more, driven by increasing trade, high rates of investment, urbanisation and technological innovation, characterised by the emergence of large, new economies, first seen in high catch-up growth rates across the emerging world. The world economy may now enjoy its third super cycle, after the first 1870-1913 and the second 1946 – 1972. Note that the first super cycle which coincided with America’s industrialisation and Germany’s Gründerjahre was stopped in the tracks on the eve of World War I. Note also the end to the second cycle which followed the World War II and coincided with Japan’s and the Asian NIEs rapid convergence was stopped by the oil price shock.” Helmut Reisen shiftingwealthblogspot.com Bull markets climb a wall of worry and there has been a sudden reversal in commodity prices because of:
Speculators, who were already “dancing close to the exits” because of Chinese slowdown fears, left the space in a rush and caused prices to drop. Is it a permanent price correction, a temporary slowdown, or do we risk total derailment of the commodities super-cycle?
As soon as the QE program, part’s 1 & 2, ended in June of this year, the markets had to get by on a lot less money and liquidity. Today the dollar is up because the EU, and the world, have an acute shortage of dollars for the necessary bailouts and needed liquidity. A rising dollar is noninflationary so the rising dollar produces lower commodity prices. Lower commodity prices lead to lower interest rates and higher bond prices. Higher bond prices are bullish for stocks. It’s this author’s belief the US will return to Quantitative Easing (QE) early in 2012. A falling weaker dollar pushes up the price of commodities, rising commodity prices tend to push bond prices lower. A falling dollar is bearish for bonds and stocks because it is inflationary. European Union Sovereign Debt Crisis As previously stated, the dollar is up because there is an acute shortage of dollars for the necessary bailouts and needed liquidity. The EU will use its bailout fund, the European Financial Stability Facility (EFSF), to purchase bonds and recapitalize banks. They are open to using “leverage” to expand the scope of the €440-billion ($611-billion) EFSF. Germany and France will propose a massive stimulus package similar to the US’s QE’s. The US Federal Reserve, Bank of England, Bank of Japan, the Swiss National Bank and China are all going to provide dollars to European banks. The sheer size of the European bailouts would be inflationary and a market return to “normal” would be perceived as the double threats of a systemic breakdown and a return to the 2008 global crisis significantly receding.
Euroeconomics.eu.com
China’s Growth A Dow Jones Newswire poll put the median expectation for third-quarter growth at 9.2%, growth was 9.5% in the second quarter and 9.7% in the first quarter. Slower growth is the result of the Chinese government attempts to cool down its economy and contain inflation, especially in the food sector. Growth in sales to the European Union, China's biggest export market, have slowed. China's currency has strengthened against the euro since the Greece debt crisis – this makes Chinese goods more expensive and therefore less competitive – trade also slowed between China and the US in September, yet overall Chinese exports still increased in September by 17 per cent from a year earlier, this after a 25 per cent increase in August. Chinese domestic demand is still strong – imports rose to $155.2 billion in September, after a record August, and purchases of copper climbed to the highest level in 16 months as restocking of inventories occurred taking advantage of lower prices. “In terms of long-term structural trends, demand is now driven by an urbanization process that is far more structural than consensus generally believes. On our analysis, China is only 20 to 25 per cent along the path towards being a mature materials market and it may take at least six to nine years before demand intensity peaks.” Andrew Keen, Thorsten Zimmermann and Lourina Pretorius, analysts at HSBC Commodities Demand Gus Gunn, of the British Geological Survey, has identified three main factors behind the steep rise in commodities demand:
By 2025, nearly 2.5 billion Asians will live in cities, accounting for almost 54 percent of the world’s urban population. India and China alone will account for more than 62 percent of Asian urban population growth and 40 percent of global urban population growth from 2005 to 2025.
China had 172 million urban residents in 1978 when Deng Xiaoping started his economic reform program. By 2006 there were 577 million Chinese urbanites. China set a goal of 65 percent urbanization by 2050. Over the coming 39 years that means 20 percentage points of urban growth per year which translates into 300 million rural residents becoming urban residents. By 2015, China’s urban population is expected to exceed 700 million and China’s urban population will surpass its rural population. China's current urbanization rate of 46 percent is much lower than the average level of 85 percent in developed countries and is lower than the world average of 55 percent. By 2025 China's urban population is expected to rise to 926 million. By 2030 that number will increase to a billion.
BCG Consulting’s November 2010 Report: “Big Prizes in Small Places: China’s Rapidly Multiplying Pockets of Growth” says China is expected to become the world's second largest consumer market by 2015 and by 2020 China’s consumer consumption nation-wide will amount to 22 percent of total global consumption, behind only the U.S. at 35 percent. The expected transition from an investment led economy to a more consumer focused model will bring about continued growth. The McKinsey Global Institute projects China's middle class will increase from 43% of the population to 76% by 2025. "The shift from investment to increasing consumption overall – and as a share of GDP – is very important to sustainable growth in the long-term. China has maxed out on the input model." Diana Farrell Director, McKinsey Global Institute India “Every major industrialized country in the world has experienced a shift over time from a largely rural agrarian-dwelling population to one that lives in urban, nonagricultural centers. India will be no different. However India’s urbanization will be on a scale, that outside of China, is unprecedented.” McKinsey Global Institute’s report India’s Urban Awakening India has 1.2 billion people and the second largest urban system in the world – almost one in three Indians now lives in areas classified as urban. A report done by the McKinsey Global Institute called India Urban Awakening predicts that 40% of the population will live in cities by 2030. By that time, Asia’s third largest economy would have 68 cities with populations over one million, up from 42 today, 12 cities are expected to cross the 2.5 million mark by 2015. The decadal population growth rate for urban India was 31.8%, while for rural India it was 12.2% – a drop of six points. 31.16% of the country’s people live in urban areas now, up 3.35 points from ten years ago – in 1901, 10.8% of the country was urban. The 2011 census data showed, for the first time, that the increase in population in India is more in urban areas, at 91 million, than in rural areas at 90.4 million. The McKinsey Global Institute projects that India's middle class will grow to 583 million people in the next two decades. At the same time, the country will advance from the world's 12th largest consumer market to the fifth largest. Africa According to The Economist, between 2000 and 2010, six of the world’s ten fastest growing economies were in Sub-Saharan Africa. The only BRIC (Brazil, Russia, India and China) country to make the top ten was China which came in second behind Angola – the fastest growing country in the world. The International Monetary Fund (IMF) says Africa will own seven out of the top ten places for fastest growing economies between now and 2015. The World Bank raised its forecast for economic growth in Sub-Saharan Africa to 5.3% for 2011 – the highest forecast rate of growth outside Asia. Africans, on a per capita basis, are richer than Indians and a full dozen African states have higher gross national income per capita than China. A lot of this growth is driven by a blossoming domestic market – the largest domestic market outside India and China. In the last four years private consumption of goods and services has accounted for two thirds of Africa's GDP growth. Today Africa has 14% of the world’s population and by 2050 one in every four people on the planet will be African – by 2027 Africa will have more people than does China or India. Development expert Vijay Majahan, author of Africa Rising, said the rapidly emerging African middle class could today number almost 300 million people – that’s out of a total population of one billion. Population Growth Since 1950, the world’s population has gone from 2.5 billion people to 6.7 billion. No less than 75 million people a year are added to this number, the world’s population is expected to exceed 9 billion by 2050 and reach 10.1 billion by the end of the century – according to the United Nations.
Pragcap.com
“It takes vast quantities of natural resources to build infrastructure to accommodate explosive growth in population, upward mobility, urbanization and industrialization. Economic studies suggest that industrial metals and minerals consumption depends on the stage of development, the stages are normally divided in four, and are said to be dominated by 1) infrastructure development, defined by high use of cement and construction materials; 2) light manufacture, defined by high use of copper; 3) heavy manufacture, defined by high use of aluminum and steel; and 4) Consumer goods, defined by high use of aluminum, energy minerals and specialty steels (Source: USGS). The stages are expected to take about 20 years each and begin at 5 year intervals, lasting for a total of 30 – 40 years, depending on political and macroeconomic conditions. China for instance, appears to have entered the heavy manufacture stage based on steel consumption, while India may be well into the light manufacturing stage.” Luisa Moreno Investingthesis.com The Global Middle Class The newly emerging middle class are a major contributing factor to the fundamental demand shift in global commodity markets and per capita consumption of commodities in developing countries is still only a fraction of the level it is in developed countries. Infrastructure spending and increased discretionary spending by consumers are the key factors driving this rising demand – as more and more people in emerging markets move from rural areas to the cities, consumption will increase putting massive upward pressure on commodities. The World Bank estimates that the global middle class is likely to grow from 430 million in 2000 to 1.15 billion in 2030. The bank defines the middle class as earners making between $10 and $20 a day – adjusted for local prices. Most of the world's middle class has, until recently, been located in Europe, North America and Japan. In the 1970s and 1980s South Korea, Brazil, Mexico and Argentina built sizeable middle-class populations. Today its China, India, Asia and Africa adding to the world's middle class. In 2000, developing countries were home to 56% of the global middle class, by 2030 that figure is expected to reach 93%. “By 2030, income per head in China – using market exchange rates, which include our view of a stronger CNY – could have risen from USD 4,166 in 2010 to USD 21,420. China, currently a big but poor economy, would become a middle-income economy – but on a vastly larger scale…Income changes elsewhere are no less impressive. India, for instance, is projected to go from USD 1,164 in 2010 to USD 7,380 by 2030, Latin America from USD 7,114 to USD 14,608, and Sub-Saharan Africa from USD 1,075 to USD 2,780.” Gerald Lyons, chief economist Standard Chartered Over the last few years the economic cycles of developed economies have become disconnected from the cycles of the developing world. A crisis in the US or Europe does not hurt development in Africa, India or China as much as many believe. That’s because there’s been a shift in global trade taking place with developing countries increasingly interacting with each other instead of their old trading partners, the developed nations. Consumers in developed countries bought enormous quantities of foreign made goods. When the financial meltdown brought that spree to an end many predicted Asian growth would halt. Not quite. Trade between China and South Asia is growing – hitting $80 billion in 2010 while China's trade with Africa hit $150-billion in 2010 and is expected to double by 2015. Over 50 per cent of India's trade is now with other Asian countries while only 32 per cent is with the United States and Europe. Conclusion The evidence is mounting markets will get back to “normal”, the sovereign debt crisis be resolved and growth from China, India and Africa and other developing nations will continue – with or without the west. There is no shortage of individual reasons, but when taken together the evidence starts to be overwhelming:
All of these reasons, working together, will translate into higher commodity prices. Today’s worries have only temporarily unseated the commodities super-cycle with the recent sell-off being nothing more than a short downturn within a secular bull market for commodities. Resource companies:
Based on actual earnings resource stocks are priced where they were at the bottom in 2008 and mining stocks are selling at single digit price earnings ratios. The bottom lines? Bull markets climb a wall of worry and the most successful man in life is the man who has the best information. High quality resource stock picks should be on every investors radar screen. Are they on yours? If not, maybe they should be.
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Foreigners Losing Confidence in Holding US Treasury and Agency Debt
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Foreign central banks buy US Treasury and Agency debt through accounts at the Federal Reserve, where it is held in custody. Without these central banks buying our debt, the US federal government would have to find a new source of funds or the result could be higher interest rates. Looking at the data on a monthly basis (and then multiplied by 12 to give the annual rate), here is the dramatic picture of how foreign central-bank purchases of our debt have shifted, from buying $500 billion to selling off $1 trillion. At this rate of selling over several months, interest rates would go higher – if other things were equal. Of course, things are not equal because the Fed has been forcing rates lower with its massive QE2 and other programs. QE 2 was $600 billion over nine months, or an annualized rate of $800 billion per year. Since foreigners are selling off our government debt, Fed purchases of government debt are even more necessary.
Here are the data on the amount of Treasuries purchased in the last quarter of the year at an annualized rate: Foreigners have decreased their holdings for the first time since 2007.
Here’s another chart worth considering. This is a comparison to the ten-year Treasury, with the purchases of Treasuries inverted.
In my latest article in The Casey Report on interest rates, I discuss the above chart and cover the broader issues driving interest rates.
What could be the cause of all this? The Senate passed a controversial bill that threatens to punish China for “currency manipulation” which will bring mandatory tariffs. China’s opposition to the Senate action could be the power behind the big shift in direction of these custody holdings. In an election year, government action against Chinese imports may be seen as supportive for US jobs, thus garnering votes. But unintended consequences of decreasing liquidity in the credit markets will put pressure on financial markets. The movement shown in these charts could be the result of China’s reaction to some of those anticipated policies. We can’t tell what country is doing the selling until two months have gone by and the TIC data are published. In some senses, it doesn’t matter which country is behind the shift. If rates begin to rise rapidly, even in the face of continued Fed manipulation, it could call into question confidence in the Fed’s ability to keep supporting the economy. The rate on the ten-year Treasuries jumped from 1.8% to 2.2% in the last week. Foreign selling of this magnitude is dangerous for the dollar, and it could be very bad for US interest rates.
[Whether this shift is temporary or a long-term reversal remains to be seen – but the end of the US dollar as the world’s reserve currency is all but certain. How can one prepare for such a life-changing move? Listen to the audio recordings of the recently held Casey Research/Sprott Summit, When Money Dies, to gain insights and actionable advice from experts including Adam Fergusson and Doug Casey on how you can not just survive what’s coming, but thrive. Order your set today.] |
India Gold Demand May Hit Record 1,000 Tons
By BIMAN MUKHERJI And RAJESH ROY
NEW DELHI — India's gold demand may hit a record 1,000 tons this financial year amid growing rural incomes following another year of plentiful monsoon rains that helped the agricultural sector, but that may not necessarily mean a surge in demand during the October-December festival season as has been the case in previous years.
This signals the maturity of a market that was once largely tied to demand during specific festivals, but growing awareness about global trends have meant investors are looking more towards price signals than seasons now to make their buying decisions.
"People don't want to wait any more for the festival season. They are buying whenever prices are low, and plan to take delivery on auspicious days," said Prithviraj Kothari, president of the Bombay Bullion Association.
The daily demand for gold in the key trading hub of Mumbai has halved to 300 kilograms from three days ago after prices edged up, although the auspicious day of "Sharad Poornima" fell Tuesday, he said.
Spot gold prices in India were quoting around 27,000 rupees ($552.1)/10 grams, while international prices at 0525 GMT were $1,679.70/oz.
Mr. Kothari said the October-November festival season sales would be on par or just below last year's level of 65-70 metric tons, but total sales during the fiscal year that began April 1 should reach 1,000 tons or more because an "excellent" monsoon would boost farm incomes.
Rows of gold jewelry shops in New Delhi's Karol Bagh area were still half-empty almost a fortnight into the usually busy festival season period, though business volumes were slowly picking up.
"You never know whether prices will jump even higher. So we are buying, as we have a marriage in the family next month," said Anamika Sharma, a housewife from New Delhi, as she tried out an assortment of rings and necklaces.
Some investors were still buying although many have been spooked by a fall from highs of $1,920/oz on Sept. 6.
"Like it or not, but gold is still a safe haven," said Vinod Jain, a businessman who had come out in the middle of a work day to buy plain gold jewelry. "Plunging share markets have only strengthened my interest in gold."
More than urban consumers, rural buyers were more often walking into jeweler shops with wads of cash after a bumper crop.
"We are certainly seeing more demand from rural areas, who have disposable incomes," said Balrram Garg, managing director of PC Jeweller Private Ltd.
Jewelers have also launched prize draws offering luxury cars and television sets to woo more customers. Traders expect demand to pick up around Diwali, the Hindu festival of lights on Oct. 26, considered the most auspicious period for buying gold.
"Last-minute buying is bound to happen around Diwali, but volumes will really strengthen if prices fall to around 25,000 rupees/10 grams," said Suresh Hundia, former president of the Bombay Bullion Association
Yuan Gold Trading in Hong Kong on ‘Triple Demand’…
Gold Supported at 144 DMA and by Negative Real Interest Rates in US – Charts of Day
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Gold is trading at USD 1,656.20, EUR 1,195.70, GBP 1,047.60, JPY 127,194, AUD 1,602.4, CHF 1,485.50 and CNY 10,564. Gold’s London AM fix this morning was USD 1,651.00, GBP 1,045.14 and EUR 1,192.74 per ounce. Yesterday’s AM fix was USD 1,658.00, GBP 1,054.64 and EUR 1,211.19 per ounce.
Gold prices have fallen marginally in all major currencies today on more unsubstantiated rumours.
Markets have ignored Spain's sovereign credit rating downgrade and a plethora of rumours continue to confuse investors ahead of this weekend's European Union crisis debt summit.
Risk appetite remains high as seen in gold’s weakness and equities strength.
With France's AAA credit rating looking shakier by the day and Spain being downgraded by two notches, gold should be supported by safe haven demand.
Every day that goes by without resolving the issue of too much debt in the global financial system is a day closer to financial contagion.
Gold looks very well supported between the 100 and 144 day moving average (simple) with the 144 day moving average providing strong support for nearly three years – since January 2009.
Bullion dealers in Hong Kong say physical demand is robust at these levels with one dealer reporting “a wave of physical buying” once prices went below $1,630/oz.
Newsletter writer, Dennis Gartman again made negative sounds about gold’s prospects.
This is bullish in the short term as many of his short term calls in recent months have been inaccurate. Indeed, some traders use him as a good short term contrarian indicator.
As ever best to ignore the noise of traders, hedge funds, commodity brokers and more speculative elements and focus on the importance of gold as a portfolio diversifier and a safe haven.
Perhaps the most important driver of higher gold prices are negative real interest rates. Savers and bond holders in the US and internationally are seeing their savings depreciate as inflation is now well above historically low interest rates in most western countries and in many emerging economies.
The Chart of the Day (‘Real Interest Rates and Gold – 1970-2011’) shows that gold prices rise during periods of negative real interest rates in the U.S. as was clearly seen in the 1970s and again since the early 2000s.
Until interest rates rise to compensate savers for the risk of saving in an untrusted banking and financial sector, gold’s bull market seems very assured. There is also the issue of savers concerns about the value of fiat currencies such as the euro going forward.
As was seen in the late 1970s, interest rates will almost certainly have to rise above real levels of inflation prior to any fall in gold prices.
What is also interesting about the chart of the day is the strong correlation between inflation, interest rates and gold.
Contrary to consensus opinion on Wall Street and many in the financial media, gold is correlated with rising interest rates in the medium and long term. The mantra that ‘gold will fall when interest rates rise’ is incorrect.
It is only towards the end of an interest rate tightening cycle – when interest rates are above inflation and therefore positive – that gold is subject to weakness.
Gold rose over 24 times in the 9 year period from 1971 to January 1980 (from $35 to $850) and it is quite possible given the scale of the financial and economic challenges today that a similar performance may be seen.
At $1,650/oz gold has risen a mere 6.6 times in 12 years which puts gold’s relatively gradual appreciation in the last 12 years into perspective.
The CPI inflation adjusted high of $2,500/oz remains a possible price target and may be seen in 2012. Some analysts like Robin Griffiths of Cazenove Capital believe that the RPI inflation adjusted high of $8,000/oz may be a better long term record high price target.
Regardless of future prices of gold, the important fact is that as long as there is no opportunity cost for holding gold (due to gold’s lack of yield) then gold will remain in demand internationally which is likely to lead to higher prices.
Negative real interest rates in the UK, the EU and the US is very bullish and a factor that is being ignored by the less informed and those simplistically calling gold a bubble. |
GOLD TARGETED BUT FIRM
The national counsel is bereft of ideas, having lost its sense of capitalism. They promote the Panhandle Consumer doctrine and Parasite Financial doctrine, calling it policy. It is heresy uttered from high priests, no longer worthy of respect. The punishment is a USTBond rally, a monster spleen, whose reservoir should never grow without bounds. When it does, doctors realize a great danger. Our economic doctors are purveyors of heretical dogma that has sent the nation into a downward spiral that it will not exit from. Industry has gone. Finance has gone amok. Investment banking has turned into a casino. Homes have become nightmares. Jobs have been vanishing. Corporations have moved overseas. Political parties are polarized. Fiat money has turned toxic, and so have their bonds which support the crumbling monetary system. The mess in Europe offers an excellent glimpse of what it to come to the United States. We have our mortgage toxic vat. They have their PIIGS sovereign toxic vat. The US has transformed into the prettiest horse in the glue factory.
The blood (tainted money) in both capitalist systems has been circulating for two years throughout the economies, spreading the equivalent of gangrene. More money thrown at the problem has accomplished nothing except to raise the cost structures, to raise the government deficits, to retire working capital, and to raise the demand for USTBonds. The only proper medical thermometer is Gold, with its Silver handle. The signal to watch is deep revived bank distress. As sovereign bonds of all stripes face ruin, Gold will again shine bright, and Silver will glitter. Following the late 2008 and early 2009 decline in Gold, it rose 150%. For Silver, the rise was over 300%. Prepare for a repeat episode as four enormous destinations are presented: 1) bank bond redemptions, 2) bank recapitalization, 3) economic stimulus, and 4) debt monetization. The monetary growth will be absolutely astonishing and staggering.
HORRIBLE CONSEQUENCES OF USTBOND RALLY
The analysts, mavens, anchors, asset managers, government advisors, central bank governors, ministers of finance, and otherwise Pied Pipers are incapable of detecting the warning signals. For those who find such a wide accusation to be off-base, consider that none of them found the housing market to be a bubble, none found the mortgage market to be a bubble, and none of them anticipated a return to economic recession. The Jackass did on all three!! Also, none seem capable of comprehension that the nation's industrial base must return to US shores. None seem capable of comprehension that the nation's biggest banks must be liquidated. Both are obvious pre-requisites for any recovery. The priority has changed once again from the summertime. The USGovt favors short-term stimulus, alongside long-term restraint, a total deception to continue. Stimulate the economy and deceive on future projections, which could not have been more incorrect in the past decade, a failing grade to economist forecasts.
Consider the horrible realities behind the USTreasury Bond bull market, signals of ruin.
The bond rally grew from direct Interest Rate Swap abuse. The first shove movement, and a kick when sputtering, came from such leveraged instruments. The additional $9 trillion in 1Q2011 by Morgan Stanley from derivatives, 85% of which are typically IRSwaps, was totally overlooked by all the Pied Pipers that populate the investment community and policy shops. This devious and hidden tool borrows at 0% and buys at the long maturity end. It creates artificial demand for the USTBonds themselves, and easily dupes investors into believing they are safe with wide demand.
Inter-bank market lending has dried up both in the US and Europe, as the corporate bond market has been crowded out. Banks distrust each other, and for good reason. They know they all hold toxic assets on their self-evaluated balance sheets. The corporate bond market is suppressed, as USTreasury Bond supply has dominated. The capitalist engine for business expansion has sputtered and gone into reverse. The corporations see little prospect for expansion within the United States, where taxation and regulation are deemed oppressive. The main expansion is of federal deficits, which must be accommodated.
This is not Japan redux, but much worse, since the US has a trade gap and lacks an adequate industrial base. Comparisons are made by hack economists and sell-side analysts. They are incompetent. Notice that Japan forced investment from postal pensions and federal worker pensions, in order to sustain demand in a Jap Govt Bond that continues to operate as a bubble. Unlike Japan, the USTBond cannot persist since its bonds that securitize the yawning USGovt deficits must grow in mammoth volume. The US bond bubble cannot continue for a long period, since totally dependent upon debt monetization, the manifestation of hyper-inflation. The US will follow the Japanese practice, by forcing IRA funds and bank CD savings to enter the USTBond channel. The leverage is tax deductible status for income and FDIC depositor insurance. The USTBond bubble has finite life span.
Watch the canaries led by Morgan Stanley. They are screeching. Not only is Morgan Stanley seeing a sharp decline in its stock price and rising Credit Default Swap debt insurance, so is Goldman Sachs. The latter has lost its shine, its exalted image, its prestige. The CDSwap market is unique, a field played by very well informed professionals. This market accurately foretold of the 2008 disaster. The Lehman Brother stock value and CDSwap rate signaled correctly a systemic breakdown within the broad financial sector. Prepare for a repeat on US soil. The financial structures of Europe and the US are interconnected. The Wall Street banks have acted as swap lender of last resort to many European banks, a story not told.
A side note of value. A key source informs that UBS was targeted for takedown, victims of a trap centered on the European currency market. As a result, in the aftermath, they forfeited their gold. UBS is out of the gold picture. The rogue trader story is nonsense, a lie. The next target, so mentioned by the same source, is Goldman Sachs. The cross hairs are aimed squarely, the backdrop selected. Soon the GSax beast will walk into those crosshairs and the net will drop. The extent of their loss will be significant. The impact to their gold participation is unknown. Their phony story will be interesting though.
GOLD TARGETED BUT FIRM
In September, the COMEX officials raised Gold futures margin requirements in a falling market, a repeat episode of what occurred in the first week of May. It was raised several times again, but was not well reported by the sleepy financial press. An anomaly has occurred. The Commitment of Traders shows very little if any abandonment by Speculators in Gold. It also shows a stunning drop in the net short position by Commercials. That adds up to a firm foundation for a V-shaped recovery in the ambushed Gold & Silver price, which the Jackass admits was much worse than expected from this vantage point. The stories of gold being sold to cover losses is poppycock. It was not sold on the physical side. The COMEX relied on their trusted time (dis)honored tool of naked shorting of the metals. The Big Four US banks continue to sell gold & silver they do not own, using metal contracts they do not post collateral toward. The COMEX is the grandest fraud among the major markets. Actually that is a close competition with the USTBond market reliant upon USFed hidden monetization and Wall Street Interest Rate Swap applications. The USDollar market is dominated by heavy handed activity from the Exchange Stabilization Fund, that notorious dark office accountable to nobody. The US stock market is dependent upon the USDept Treasury, which leads the Working Group for Financial Markets (aka Plunge Protection Team). Is any US financial market honest and free from corruption? Not at all!
Notice, in keeping with the theme of this article, that the COMEX decided to leave USTBond margins intact even though an obvious bubble. With the 10-year under 1.8%, the market has become a laughingstock, a farce, a joke, an embarrassment. The very powerful move in Gold from the $1550 base in the early summer to the $1900 level triggered a selloff. It had help with numerous COMEX margin hikes focused entirely on Gold. Some prefer to point out a 2008 redux. My view is no way a similarity. A strong ugly 25% decline in late 2008 and early 2009 resulted in the Gold locomotive downshifting into second gear. In the late summer 2011, a move of greater than 20% to a record high was canceled. The 2008 gold decline was like a move backward that took all the wind from the sails. The 2011 gold decline was like a move back, still to a high gear, that merely removed the summer gains. The Gold locomotive returned to a pause between fifth gear overdrive and the fast fourth gear. The comparison to 2008 is loaded with propaganda and inaccuracies. The strong established uptrend is as clear as the morning sunshine. The Gold price has returned to the middle range of the stable upchannel.
Gold is preparing for gigantic new destinations being stuffed with money. The money is tainted, like all past money dedicated as bank aid, economic stimulus, and more debt monetization (whether hidden or revealed). The next round will be very powerful in new monetary expansion. Gold is ready to jump quickly back toward the $2000 level. Notice the potential for a technical rebound that could be extremely quick, very exciting, but deadly to the system once again. A strong rebound move is likely from $1680 to $1820 in a flash, since no resistance is evident. The sudden move might take your breath away.
Some truly dangerous winds are blowing. Restrictions of gold purchase are being imposed in Central Europe. Wall Street has openly mentioned their menacing arbitrage targeted against Europe in exploitation of their financial crisis. The Mexican disintegration continues apace, with no coverage except the illicit weapons sales from the USDept Alcohol Tobacco & Firearms. The Mexican Peso is down to 14 per USDollar. The Saudi transition continues behind the curtains, as they adapt to a new Chinese protector in the Persian Gulf, and watch the global pendulum swing from an oil-based pivot to a gold-based pivot. Russia is busy preparing channels to Central Europe for commodity supply. That is not new, but the financial underpinning might be, since not based upon the USDollar. JPMorgan CEO Jamie Diamond bickers with the Canadians and overlord Swiss bankers. Perhaps is all show. Perhaps instead JPMorgan stands on far fewer legs than a couple years ago, and what we observe is twitching and teetering. Goldman Sachs CEO Lloyd Bunkfein struggles to avoid a perjury indictment. Lies to the Levin Committee might have come back to haunt him. They were blatant. The prestige of the US bankers is fast vanishing.
PREPARE OR DIE THE RECENT GOLD TAKE DOWN
The takedown of gold and silver markets over the past two weeks signified a new milestone in corruption, brazenness, arrogance and it reveals the level of evil control behind our government. This past week, in just one week, saw gold fall almost $200 and silver about $10.00. We have been involved in gold and silver for 53 years and the only event that comes close to this was October 19, 1987, when we witnessed the Bank of England sell down gold $100.00 under the orders of the Fed and the US Treasury, which borrowed the gold from the IMF. That was illegal, but that means little to the Illuminists who do as they please. Today thanks to Ronald Reagan we have the “President’s Working Group on Financial Markets,” which has legitimatized corruption to conform to the Keynesian model of corporatist fascism. After the close on Friday we were informed, that the CME, which controls the Comex, had raised margin requirements on gold by 21%, silver 16% and in copper by 18%. In retrospect it is obvious that many banking insiders and traders knew early in the week that this momentous psychological warfare was going to be unleashed on these markets. Your government definitely rigged these markets. Today in America and many other places as well, crime pays. What has been done to investors over this past week is not only a crime, but also a disgrace to all Americans.
Let us now look at the flipside. All is not lost, because there is a limit to the damage that can be done. The paper attack on gold was concentrated and accomplished by using futures, options and derivatives. Thus far there is no evidence of any major sales of gold or silver. This in the past has generated very short terms of suppression. The fundamentals have not changed one bit and if anything they are stronger than ever. The world is in the midst of financial collapse. It could take a few months to fall or several years. We do not have a presence behind the scenes, but we do know history and we know what these criminals are up too and what the end game is and that is world government. We have to back into time sequence. That has thus far been enough to help us to make excellent calls. The call this time is we are approaching another bottom. A bottom that probably won’t be seen again. Major buyers of gold and silver have to be waiting with open arms for such a great opportunity to purchase both metals at bargain basement prices. There are sovereigns who are loaded with US dollars, who have been waiting for just such an opportunity to sell them into a strong dollar market to purchase inexpensive gold and silver. Today’s market is totally different than the gold and silver markets of just two years ago. Big players are big buyers. Prior to that the opposite was true as sovereigns were sellers year after year, and both were transferred from weak to stronger hands. The monetary and fiscal situations in Europe, the UK and US are in a shambles. The privately owned Federal Reserve, the Bank of England and the European central bank have all lost credibility. Just look at the reception “Operation Twist” received – bonds rose and the stock market was hit by a typhoon. The Fed has lost its credibility in the investment arena worldwide, because of forced compromise to existing problems. The fed simply didn’t have the guts to implement a QE 3. If the Fed is not quickly forthcoming with a new plan the Dow could fall thousands of points. The damage to gold and silver is already in the history books and the turn back up is already taking place. No matter what the powers that be do they cannot for any period of time control gold and silver prices. There are too many buyers who want to dump fiat currencies. Under the circumstances the Twist was the wrong choice at the wrong time. Financial professionals worldwide believe it is a joke. They see the lack of proper action, the activation for events for more damaging then those of 2008 and if something doesn’t happen this week markets and economies are doomed. The elitists knew this and that is why they attacked gold, silver and commodities. This was so investors would think it was a general overall retreat not a reflection of Fed incompetence. Their fall had nothing to do with reality and everything to do with smoke and mirrors. This should not surprise anyone. It has been used over and over again by the gold and silver suppression cartel.
This latest fiasco gives us two major problems. The other naturally being Europe and Greece. Duress isn’t the word for it. Global systemic risk lurks around every corner. In Europe the ESRB has called upon governments to prepare capital injections for banks, which were close to failure, or failed stress tests. The taxpayer is to be the lender of last resort. At this juncture those who do not recognize all of these machinations as a Ponzi scheme just do not get it. As we saw in QE 1 all the effort was put into saving the financial sector, and in Europe presently we are seeing the same thing happen. At the moment at least, and we do not expect any quick recoveries, Europe is weaker and in more serious trouble than the UK and US. The problems of Europe, the US and UK have now as well spread contagiously into Asia, its financial system and into their economies as exports fall. Europe is one step away from losing control. The question is how long will it take? We do not know, but we will have a better idea after September 29th. Then we will have to reassess Europe’s public and banking debt and bad debt problems. If you remember we predicted this crisis occurring a year ago. Well, here it is. What Brits and Americans fail to understand is that the worst is ahead for them as well.
Make no mistake Europe is facing another liquidity crisis worse than the Lehman crisis. This crisis is being exacerbated by massive markets manipulation by major US and UK banks and brokerage houses. They will do just about anything to gain an edge. You saw this last week in European, UK and US markets including commodities, gold and silver. These criminal opportunists are going to play this game to the bitter end, because they will not accept a purge of the system.
In the past spring we could see problems arising at banks and in the corporate world. Now we see those conditions manifesting themselves. These were the institutions that paid no heed to prudent lending and now are paying for it dearly. US money market funds and other institutions have pulled 2/3’s of their short-term investments out of EU banks, particularly in France. In addition European corporations are withdrawing funds from French banks and lodging the deposits at the ECB. It is not surprising to us that the Rothschilds had to come to the aid of Soc Gen three weeks ago.
The US has its share of shaky banks. We all should be aware of the condition of BofA and the Bank of NY. They are not the only US banks in trouble in the too-big-to fail category. There are a score of them that the media conveniently fails to report on. Many of these banks are finally being sued for fraud. Most of their officers should have been charged criminally long ago. The mortgage securitizations they were involved in were in some of the worst financial scams in history. Even worse yet, were the rating companies that courts have let totally off the hook. The complicity and criminality jumps right out into your face. As you can see in American society some are more equal than others.
Even German banks have not escaped the lack of capital, obviously having lots of bad assets on their books. They could need an infusion of some $200 billion. This is fairly widespread. They all made similar errors. We have always thought there was more to Germany’s bank problems than met the eye. We still believe there was a secret deal between these banks and the Fed. Why else would it have taken on 60% of American banks’ toxic waste? It is of interest as well that the IMF says European banks could be short capital of $270 billion.
The European crisis is still escalating and Ben Bernanke has chosen the wrong vehicle, operation Twist, for recovery. Mr. Bernanke and the Fed had best have a plan B for this week. For the moment the stock market decline has been arrested by the PPT, but for how long? At the same time this same group expends billions of dollars pushing gold and silver lower? These events go forward as the IMF says the world economy is in trouble. We see the fed’s efforts as having a slow effect that will perhaps relieve the 3.8 million house inventory they and lenders are carrying, but it is a losing battle even at 30-year fixed mortgage rates of 3%. The 4-year foreclosure projection is for an inventory of 8 to 11.5 million foreclosed homes as the building industry adds 550,000 new homes annually. We ask what can they be thinking? The Fed has taken the wrong road for its prime vehicle. It doesn’t mean they have to abandon operation twist, but they have to have something that will act quickly to move the economy into growth. It is quite evident at the same time that they will have to purchase $850 billion to $1 trillion in Treasuries as well, plus loan more than $1 trillion to European banks and perhaps governments. The downside on the 10-year note could be at 1%. Who would buy such paper with 11.4% inflation? No one of sane mind would make such an investment. They had best do something quickly. It should not be buying mortgage bonds and collateralized mortgage debt. That only shores bank balance sheets. The Fed needs banking to prudently lend out the $2 trillion they are sitting on if small and medium sized business will borrow it and create jobs. The Fed and government have only two choices, inflate or purge the system. They had the same choice in 1990, 2000 and three years ago. We have seen 20 years of lying, manipulation and incompetence and the American public is sick of it. There is no question that lack of confidence is hurting recovery and that could change if Mr. Bernanke was replaced. Reflection of that lack of confidence is the abrupt lack of insider buying of company shares. It could be the Fed, Treasury and the “President’s Working Group on Financial Markets” have lost control. If it were not for the terrible problems in Europe the dollar would be much lower versus other currencies, gold and silver. The economy needs inflation and it is up to the Fed to supply it. If chairman Bernanke cannot supply that he will soon be leaving his post.
Part of what happens as a result of Thursday’s Bundestag vote will dictate how the ECB handles its problems pertaining to policymaking, its circumvention of rules and the holding of an enormous amount of securities and banks that are weak along with insolvent governments. In addition, they have to find a way to sell these securities. Their only hope is if Germany agrees to participate on Thursday.
In the meantime in case the Bundestag refuses behind the scenes a grand plan is being put together involving massive bank recapitalization, which would give the EFSF more power. This in part would be done by the ECB via leverage and a loss-sharing arrangement to avoid having to further submit to national congresses for approval, effectively relieving them of their sovereignty. The German people do not want this, but the CDU is pushing it in exchange for its support against intervention and a partial Greek default, which the CDU rejected two years ago. Many want the ECB leveraged, but within the legal framework of the EU Treaty and the bailout fund it cannot be leveraged. Just involving the central bank violates the EU Treaty. This past weekend the IMF meeting in Washington produced nothing. The effort to raise $3 trillion would trigger credit downgrades for all participants.
The ECB recently purchased some $55 billion of Italian and Spanish bonds in the open market, which was in breach of rules. We might ask whom will they sell them too?
There is no question bankers and central bankers are trapped and there is no way for them to painlessly extricate themselves. These are the experts that have been responsible for imprudent lending and they demand they be bailed out.
In the US the Fed has to resort to QE 3 and if they do not the system will collapse. They have to assist in creating jobs. There can be no recovery without job creation. The only way to recovery is lavish federal spending, not budget cuts, otherwise the great purge begins; already the hour is late.
What has to be indelibly printed in everyone’s minds is the self-interest of banks and bankers. Problems are not dealt with expeditiously because it is all about self-interest and survival. Jobs, the recovery and the economy are secondary. The continuation of the EU and the euro zone has to be saved at all costs by any means to bring about world government. The move toward a super-state has to be done quietly and with stealth, without the people realizing what is being done to them – eventual enslavement. Politicians who have ceased to represent their constituencies are expediting the road to serfdom. That is reflected by 70% of legislation coming from bureaucrats in Brussels. In the US it is done via payoffs.
The crisis is again in control and whether Europe can put its house in order remains to be seen.
An Overpriced Marked Meets The Global Economic Slowdon
An excerpt from Bob Chapman's weekly publication.
It could then be that this is the top of the stock market, which is fundamentally very overpriced. The latest rallies are the result of statements by French President Sarkozy and German chancellor Mrs. Merkel that a financial solution is at hand for Europe. This announcement named the end of the month as the date for release of this information. Thus far there has been no further comment. This was the justification for a very strong rally. In the wings there are large short and put positions, which tell us that there is a body of speculators that believe the fundaments are not in place, nor was the recent rally justified. In relation to Europe we see two possibilities; countries bailing out their own financial sectors and the use of leverage to extend bailout funds into trillions of dollars to assist the six insolvent nations. Some nations currently prohibit the use of leverage. Needless to say, rules do not impede adventurous politicians in the control of elitist interests such as the banking community. We will have to wait for this new formula, but in the meantime its results have already been discounted, or military action increases in the Middle East, perhaps in connection with Iran?
Debt problems are endemic worldwide. We all know of the problems in the US, UK and Europe, but they extend all over the world. We are in a major financial crisis, which is as bad and will be as damaging as the credit crisis of three years ago. In fact we never exited that crisis. Debt is the problem and creating more debt does not solve the problem. We have written often about debt and currency problems and as yet nothing is being done to solve these problems. It is as if these powers wanted a collapse. How long can the US dollar continue to take this thrashing? Unfortunately it is not only the dollar. Over the past 1-1/2 years nine major currencies have fallen on average more than 20% vs. gold and silver. Thus many countries and their financial institutions are going to be in serious trouble. The dollar and the euro are both overvalued and even after a 15% devaluation the Swiss franc is undervalued. It is not only going to be currencies, but everything financial that is going to be affected. That includes bonds, stocks, savings accounts, CD’s; cash value life and annuity policies. The only things that will benefit will be gold and silver related assets. For all intents and purposes in the US, the FDIC has no funds and has to have them allocated in the form of debt by the government. More debt means more inflation and higher precious metal prices. The global financial community has to be terrified because their whole world is coming unraveled around them.
It is quite evident that Greece can never repay its debt no matter how much bailout funds they receive and we stated as much two years ago. The other five sovereigns in trouble are almost as bad off. We do not know as yet what the magic elixir Sarkozy and Merkel are talking about, but it is evident Germany cannot engage in leveraging the 50% of funds that they are committed for the EFSF. Otherwise it would be a change in the constitution and a referendum, which doesn‘t have a ghost of a chance of passing. As we have said before it has come down to every man for himself. All they can do is ring fence their own countries making sure that their financial institutions survive. All of this takes money. Money that has to be created and this is inflationary. Even if our projection of $4 to $6 trillion was met massive inflation would ensue and worse yet control that would leave sovereign hands and pass to the EFSF and the ECB. Issuing EU bonds is not the answer either although we do not think they’d be approved.
There is no question factors dictate a lower US stock market. Those are not just fundaments, but they also include the fallout from Occupy Wall Street and the Occupy the Fed movements. These three factors alone whose effectiveness are spreading worldwide could put great pressure on US and other markets. Over last weekend Rome exploded into demonstrations and violence by the public. This while in Paris the G-20’s recommending increasing the size of the EFSF. The question is where does the money come from? American money market funds and others are in the process of pulling out some $350 billion from banks and sovereign debt in Europe due to the shifting situation in Europe and the euro zone governments to keep banks in dollar cash. Again, that shows how connectivity has reversed itself and has become a major problem. Unless bailed out, several banks in trouble can bring down the whole system. One thing lower stock markets would do is bring a cry from the US, UK and European public for more liquidity. If not chaos could be just around the corner. The talk by central banks and governments and Wall Street and the City of London heard just a few weeks ago has turned into cries of desperation. The leverage needed in Europe can only come from the Fed and the Fed shall supply it – leaving possible cost to the American taxpayer. As long as Europe’s problems continue the dollar will receive cover and strength versus other currencies, some of which have fallen 15% over the past couple of months. All currencies will continue to fall versus gold and silver. Another factor to consider is what if real interest rates rise, what happens then? Higher debt servicing costs and lower stock markets.
The world economy is slowing down again in spite of massive injection of money and credit. At the same time the world is drowning in debt, much of which is unpayable. Governments enmeshed in the same problem have only one recourse and that is to print more money. The changes long-term consumers do not notice is that their savings and pensions are being stolen by government to balance their losses. This ongoing process of inflation will eventually lead to hyperinflation. Just as economies and the middle class were destroyed in Weimar, Germany between 1921 and 1923 and more recently in Zimbabwe, the same will happen in the US, UK and Europe if they keep doing what they are doing.
As the Fed engages in operation twist foreign central banks have sold about $76 billion in US Treasuries over the past couple of months, the most in over four years. Over that period bond mutual funds have increased holdings by 45% and the Fed has added $650 billion to its balance sheet. This can in part be explained by foreign central banks selling dollars since June to shore up their currencies that had weakened by 4% to 15%, the result of a stronger dollar caused in general by a weakening euro. Many believe that the slack will be picked by banks, pension funds and insurance companies that have been withdrawing from European debt markets due to the uncertainty of the euro and the financial problems yet unsolved in Europe.
November 3rd is the due date for a EU solution to Europe’s financial crisis. Thus far no workable solutions have been offered, so we will have to wait 16 days for their decision. In the meantime there is a European Summit on October 23rd and perhaps some solution can be found.
Foreigners are holding $4.48 trillion of Treasuries, a reflection of foreign accumulation at a compound annual rate of 17% since 2001.
The USDX rose 6.3% in September, the most in three years, but it has been receding during October due to the euros changes due to future perceptions.
The world economic community still believes U3, a 9.1% in September unemployment was reflective of the US economy, while real unemployment continues to hover at 22.6%. As we predicted the economy slowed in the first half of the year as stimulus 2 waned, and the final six months will be no better. If QE 3 and stimulus are not added next year the economy will be gruesome. Economic growth for 2011 should be 1.3%. Without QE 3 and stimulus it would have been minus 1% to 2%. The $447 billion jobs bill was rejected, so what happens next? Probably a scramble by the House for further stimulus funds early next year after a Christmas that proves to be lackluster. Those plus sales figures mean little unless you add in 13% inflation from the real economy. We’ve heard lots about a perceived improved employment of 1.9 million jobs lost from the rejected jobs bill. How could that be as jobs stream out of the country? The House and Senate just passed further legislation in a trade deal with South Korea, 3.2% unemployment, and in Colombia and Panama. That will cost the US millions more lost jobs. This is what happens when you have a bought and paid for Congress.
At the end of 2010 the Fed held 17% of Treasury debt, up from 11% at the end of 2010. We can understand why the Fed would buy Treasuries, but other buyers face guaranteed losses in purchasing power. That is about an 11% loss. Is safety really worth such losses, and perceived safety at that? In spite of the slowing economy customer’s deposits at banks have reached a record $1.61 trillion. Irrespective of the wisdom involved part of those funds are going into Treasuries.
Looking at Europe we see no viable legal solutions. Banks will be ring fenced, nationalized, as they near, or they go into default. That means governments assume the bad debt so their citizens can pay for the losses caused by the banks. This means Greece will default sooner or latter and the other five insolvent nations will demand more bond purchases and lower interest rates. If that is not forthcoming then they will fail as well. Whether these countries and their banks fail more and more money and credit will be created. We just saw the Bank of England and the ECB do this last week. These central banks are following the Fed formula to a T, which means there will be more inflation in the future. This is the result of a US dollar cash shortage at key French banks and the demise of the French-Belgium bank Dexia, which has now been split into a good bank and a bad bank. Now that Mr. Trichet is gone we believe there is an excellent possibility that the ECB will cut interest rates, as troubles abound and the European economy slows. In the meantime monetization is the order of the day and inflation flourishes. Once Greece fails this monetary expansion will be long forgotten, as much more fuel is added to the fire to offset Greek bad debt and the specter of five other major sovereign failures. Money and credit has to be available from solvent governments to keep their domestic banks functioning, that is why ring fencing has already begun. The leadership in Europe knows what we know regarding what is on the way. They have even taken the precaution in France and Germany of printing French francs and Deutschemarks. Giant debt monetization is on the way and can’t be avoided along with an ECB interest rate cut, now that Trichet is on his way out.
The result of these policies is a major effort to keep gold and silver contained in their present ranges by central banks, particularly the US Treasury. All of the hedge funds know this, because many of them are acting for the Treasury. The intent is to characterize gold as a non-performer and an unworthy investment vehicle. Debasement is on the way and gold and silver have to be shown in the worst possible light. It will be temporary but painful, but it is part of the game. Once the investors worldwide see what is going on you can expect gold and silver to break out to new highs. Versus gold and silver currencies will again fall as they have for the past 11-1/2 years. Currencies will not be a place to be. Again, once this current phase of government manipulation of gold and silver prices is over, you can expect a very sharp upward movement. Thus those of you who want to join in for the ride should do so soon at these manipulated lower prices. Operation twist is only going to work in the sense that the Fed will buy sellers paper in order to assist sellers and lower rates if possible on 30-year mortgages. If we had a government run properly we would not have something as anti-market and fascistic as the “President’s Working Group on Financial Markets.” The end of this Executive Order is most pertinent. Once gone we can again have free markets.
When Confidence Leaves The System It Could All Come Apart
An excerpt from Bob Chapman's weekly publication.
The investment world hasn’t been too excited about “operation twist.” After its announcement the S&P fell more than 14% and worldwide stocks fell some 23%. Commodities were smashed, and silver fell 28% and gold 12%. During this process short dated yields on Treasuries fell close to zero and maintained, as long-term yields fell. That means granny and grandpa will have less to live on and pensions won’t attain 7.5% return to reach their retirement goals. The result is a Dow yielding 2.8% and S&P 2.2%, while the 10-year T-note yields 1.9%. It is not surprising that fund and money managers are reaching for high yield quality stocks. This they believe will provide yield and safety, while waiting for the next Fed innovation. A situation such as this has not existed for 53 years since I left counter-intelligence.
Due to problems in Europe we have seen funds move into the US dollar and Treasury securities as the euro falls and trembles. Germany and France as a protective procedure are printing up D-marks and francs, like there may not be a euro in the near future. The US federal government has just spent $900 billion unaware that austerity should be the name of the game. The enabling super-Congress is struggling to cut $1.4 trillion from the budget on a long-term basis and has to do so by late November. In the meantime the President wants to increase current spending by $447 billion to supposedly provide jobs. Still in the cards is Mr. Bernanke, who has told us several times that he may have to ease monetary policy further. Real inflation is 11.4%, but evidentially Mr. Bernanke doesn’t see inflation – or so he says. Yet he knows the inflation he has created since he took over from Alan Greenspan, has offset the deflation emanating from the real estate industry, which is still ongoing.
If you give up liberty for safety you are doomed and that is where the US economy is headed. It will provide retarded growth and persistently high and higher unemployment. The quest for safety in US Treasuries will prove to be a deception, as the economy continues its degenerative process and inflation not only negates the returns but also guarantees 10% losses. As an aside, this process allows the Fed and government to stay in control and forces you to play their game. That is why they continually attack gold, silver and commodities. They want to make them as unattractive as possible, as an alternative safe investment. What the Fed and other central banks won’t admit to you is that the foundation of the current monetary system is crumbling and these are last-ditch moves and all the insiders know this. That is why the looting of the system has risen to a new level and these elitists involved could care less that you know what they are doing.
As a result of what has been going on republicans took the House majority last year and almost won the Senate. There is a present undertow among Americans to have an incumbent massacre in November 2012. They have come to realize everything out of Wall Street, banking and Washington is a lie. Even if passed they do not believe the Obama jobs legislation will accomplish anything. Wall Street and banking run the country and own Congress and it is their policies that are destroying the country.
We also believe much of the public understands what the debt extension bill was all about. The dismemberment of Social Security and Medicare and the imposition of the enabling Super Congress has been created so that the President can become dictator, just as Adolph Hitler did. In addition, Republicans put roadblocks in front of legislation so Senate Majority Leader Harry Reid simply changed the rules. This is what our elected representatives think about rules and the US Constitution. They do whatever they like and get away with it.
Then there was the famous S&P downgrade of US Treasury debt. The excuse for that, which should have been done years ago, was that Congress had not cut the budgets for Social Security and Medicare deeply enough and if cuts were not to their liking then they would lower the rating again. S&P said nothing about the cuts in war spending. In spite of these prognostications over the past two months long dated Treasuries have hit new highs, befuddling most investors. It is probably because of the Fed and its market intervention. Most did not expect manipulation to happen so quickly. Looking at the long bull market in Treasuries, what is going to happen when 10-year T-notes are at 1% or 1-1/2%? Will investors hold Treasuries indefinitely at virtually no return? Then again with inflation at 11.4% that cannot be a very prudent investment.
There is no question Treasuries are now truly in a bubble, but it could remain that way for some time to come. The attraction, of course, is perceived safety, but we do not see it that way at all, because we see lots of continuing problems and eventually a collapsing currency. In time a great deal of wealth will be lost in these securities, that is why we recommend gold and silver coins, bullion and shares – they are a far better alternative solution. We believe someday the US will default and finally people will understand what we were talking about. The call is a simple one, just look at the economic and financial wreckage in America and elsewhere. A real estate industry that has been destroyed, both residential and commercial; trillions of dollars in equity destroyed; bond and stock markets that are priced far beyond reason; unemployment refuses to fall and economies held up by quantitative easing and stimulus perhaps forever. QE 3 has been underway since June using $300 billion in securities rollovers plus swaps. In addition we also see a fiscal deficit of $1.6 to $2 trillion this year. As a result of QE and fiscal debt we could see total debt for both rise from $1.5 to $2 trillion.
Government, the Fed, banking and Wall Street do as they please enriching themselves, as many Americans starve and investors make little or nothing. Another added negative feature that few think of is that the Treasury’s giant demand for funds crowds other borrowers out of the market, putting upward pressure on real interest rates. We already have seen low rated sovereigns and junk bond purchases dry up and their yields rise. Bond issuance has also fallen dramatically as well. Rates in the US are also reflective of the financial disaster that is Europe. Mr. Sarkozy and Mrs. Merkel tell us Europe’s problems will be settled by the end of October, yes and pigs have the ability to fly. On that news we get a major stock market rally, the euro rises and the dollar falls.
That is on the suppressed anticipation of the end of the European financial problems. If that will be so, why are heavily officially gold, silver and commodity prices rising? It is because the flight to quality continues in spite of criminal activity by governments and central banks. These governments all lie about their statistics as a justification, as to what they are doing, but they fool few. Investors and professionals know what they are up too. Some governments have been looting domestic pension plans over the last several years and that trend will accelerate. It is only a matter of time before the US government and its purchased Congress goes after America’s private and public pension plans. You had best get out now while you can. There will be no second opportunities. Once trapped by law you will end up with government promises that have no intention of being fulfilled. Such policies will have a negative affect on stock and bond markers, gold, silver and commodities will rise and the negative pressures will force nationalization or failure of major banks and brokerage houses.
As far as we can determine the bottom in gold and silver began to be set two weeks ago, they have moved upward, but not as quickly as we had anticipated. The Working Group on Financial Markets has been attacking gold and silver still, but not with the firepower that they are capable of. It looks like a delaying action in anticipation of further EU problems and forming an opportunity to accumulate long positions. We, via the COT commercial net short position reduction, see the big banks anticipating a strong upward move in both metals. We see such moves in spite of higher margin requirements by the criminal CME, owner of the Comex. Government participation in manipulation of the dollar as well as gold and silver as usual emanate from the Exchange Stabilization Fund a subsidiary of the Treasury. Such antics killed off a move in gold to $2,200 and silver to test $50.00 again temporarily. We should see the major move in both metals shortly and by the end of February could see $3,000 gold and $65 to $75.00. It depends in part on events and the government participation in the market. Again, due to the speed of the downward move all small and medium players were again wiped out, as the banks earned large profits having rigged the results along with the government. Gold and silver will prevail and achieve much higher prices in spite of government and banking interference.
As the yield on the 10-year T-bill returns to 2.16%, due to the rise in the market, which at least for the time being reflects movement of funds back into the market from bonds and we see pressure on a number of currencies – some of which is uncalled for. Oil finally moved back up over $85.00 and copper got back to $3.38. The gains in CDS, credit default swaps, were large and we believe much overdone. Even US corporations’ bonds were hit, which we found overdone. Traders and investors threw the baby out with the bath water because of the failure of Dexia, a top 25-European bank. Dexia will be split into two banks, one good and one bad. The citizens of Belgium and France will absorb the losses in the bad bank. Taking the Dexia situation into context and moves we see by the German government we expect all European counties to separately defend their own banking systems. Those that cannot do that will slip into insolvency.
In between the US and Europe we have England, which we believe is in worse shape than the US and EU. They just executed $116 billion in additional money and credit to keep their financial system afloat. Bank of England governor Mervyn King says, “this is the most serious financial crisis we have seen, at least since the 1930s if not ever.” The media deliberately ignores England’s problems in favor of European and US problems.
The ECB has $53 billion in new funds with which they purchased collateralized bank loans. What we see is more liquidity and more inflation with dubious collateral. Next we will see recapitalization for which the price will be dear. Watchers see unfolding events, but they do not understand the gravity of the situation. It could be that over the next year the entire world financial system could come apart. We know that the central banks know that throwing money and credit at the problems do not work, and it is doomed to failure. They kick the can down the road as long as they can and then we will have war to distract the public. The war will be blamed for everything just as it has been in the past, only this time too many people understand the scam and it is not going to work. Confidence has left the system and that situation is going to worsen. Few jobs are being created as job demand increases by 250,000 month and only a little over 100,000 are being created. The elitists won’t accept the purge but sooner or later it will be forced upon them. If you think massive amounts of money and credit work, look at the results of more than $20 trillion being shoved into the system over the past three years. All it did was keep the system from collapsing. Once the bogus liquidity stops so does the system. These people are not fooling anyone, even the semi-educated public. That is why your only safe haven is gold and silver related assets