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Very true. I spend at least 30-40 hours a week reading and (hopefully) learning. It all kind of centers around what affects the life of myself and family. It sounds almost narcissistic but the people we elect to watch out for us seem only to be concerned about themselves, so I compensate alittle. Never forget government is a living entity that will do whatever it takes to survive no matter what costs the people must bear.
So keep the bricks coming. No one knows all the pieces so we just gather what we can.
.........al
Mr Hamilton has some valid points and much of what he said is known to avowed silver bugs. What I failed to see or perhaps overlooked or missed altogether, was the multi uses for silver causing non replaced consumption. I am certainly not knocking gold here, but as a store of value there is virtually no consumption of gold that cannot return to supply in a hurry given the right circumstances. While the same is also true for some silver uses, there are many that make the retrieval and reuse of silver nearly impossible or economically unfeasable. So it disappears never to be "seen" again. I think longer term this will eventually cause the uncoupling of the silver/gold pricing ratios. I'm sure most have read some authors that claim there is now more above ground gold available than there is silver. I don't buy it (yet) but it makes a silver investor feel quite good about his/her investment no matter what the spot price is.
.......al
Yep! Sure did. eom
"If I am in control of the money supply of a nation, I don't care who makes the laws"
Guess who?
........al
So these figures taken from the iBox are up to date and still accurate?
Thanks
.....al
Total Authorized Shares: 100,000,000 (September 8, 2008)
Outstanding Shares: 38,056,924 (September 8, 2008)
Restricted Shares: 7,100,000 (September 8, 2008)
The Company Treasury: 21,200,000 (September 8, 2008)
Public Float: 9,756,924 (September 8, 2008)
The info in this article referring to dwindling comex stocks to me is very significant. It was bound to happen. Look for the comex to close the delivery market and offer only cash for positions.
......al
http://www.resourceinvestor.com/pebble.asp?relid=48202
Got Gold Report – COMEX Commercial Short Positions Still Low For Gold, Silver
By Gene Arensberg
23 Nov 2008 at 09:00 AM GMT-05:00
While equity markets were once again bludgeoned unmercifully this week, gold and silver fared relatively better. Perhaps that is in part because the largest of the largest futures traders continued to have the lowest COMEX futures net short positioning in years.
ATLANTA (ResourceInvestor.com) -- As the world once again fell into an abyss of fear over the past week, the reasons for which are well documented elsewhere, investors are coming to the realization that a violent new bubble has been forming since July. The new bubble is the global rush into U.S. treasuries and into the U.S. dollar. However, the largest of the largest traders of gold and silver futures continued to report very low net short positions, right near the lowest net short positions they have had in years.
A net short position means that the trader profits if prices fall.
Used to be strong dollar means weak gold, but now?
From July up to now, in November, a combination of the rapidly rising U.S. dollar index, vicious forced and panic selling of all asset classes and massive deleveraging have helped to put downward price pressure on both gold and silver along with all other commodities. Very large funds and investors that were faced with the need to raise cash have been forced to sell anything liquid, even that which they wished they could hold, in order to meet redemptions, margin requirements or what have you.
Carry trade unwinding has forced offshore investors to buy U.S. dollars as a function of selling off dollar denominated assets. Perversely, the U.S. dollar has gotten the mother of all forex bids during this horrible financial bedlam. Not because the dollar is inherently strong, mind us all, but mostly because it happens to be what things are traded in the most and, thanks to the U.S. Federal Reserve, it is also the most liquid of liquid currencies.
When people are suddenly and violently frightened financially they just want cash and treasuries. Without getting too much more into exactly why, (which could take up all the space allotted to this report by itself), suddenly the dollar has merely become one of the strongest and healthiest looking members of the global fiat currency leper colony. All fiat currencies are sick, but apparently not equally sick.
The dollar is rising and rising fast. Too fast. The spike in the dollar is a signal flare. It is a warning klaxon sounding. This is a flame out just before the inevitable stall.
The net short-term effect has been to see gold (and silver) unnaturally hammered as measured in those rapidly-rising-in-relative-value paper U.S. dollars and a few other currencies, such as Japanese yen. At the same time gold has appeared stable to strong in others such as in euro, Australian dollars, Canadian dollars and pounds sterling as examples.
Just when gold metal should have been screaming higher (with silver tagging along), as measured in U.S. dollars it plunged on futures markets all the way down from the $900s to the high $600s before the opposing forces of deleveraging/fear versus safe haven demand/wealth protection set up a tighter trading range in the low USD $700s.
Demand is there all right
Meanwhile, as covered in the last Got Gold Report, premiums for actual gold and silver metal on the street skyrocketed because people wanted more of the precious metals than was actually available. The very high premiums continue, by the way, and availability of real physical gold and silver remains tighter than a cheap rubber band.
Premiums are the amount paid and charged by dealers over the spot price for metals.
This week we learn from the World Gold Council that, as we suspected it would from those very high physical metal premiums, all over the world demand for gold has been tremendous, especially in the Middle East, India, Indonesia, Asia and in Europe.
On Friday, November 21, we may have seen a taste of what gold is supposed to do in times of real economic crisis. Why?
As financial terror once again escalated through the week, with equity markets plumbing new depths, fear of systemic financial collapse escalated on the price cave in of Citigroup to just over $3.00. Attempts to explain and to reassure by public officials, including Treasury Secretary Henry Paulson, failed to slow the carnage. While that financial nightmare was unfolding we observed gold holding steady in a tight consolidation range. That was even as the U.S. dollar remained quite strong relative to a basket of other fiat currencies.
Then, on Friday, the heretofore dominant sellers of gold futures across the globe saw their $750 Maginot Line give way as gold powered higher $43.00 or 5.8% in one day. Technicians love consolidation breakouts and tend to gain confidence from them provided they show staying power and follow through right afterwards.
Time will tell whether or not what we saw on Friday is a portent of more to come or a one-off news-driven event, but some of the most astute observers out there today are suggesting that at some point the current “bubble” in the U.S. dollar will reach a crescendo, followed by a hard and fast plunge in the purchasing power of the greenback. These analysts, the same ones that correctly predicted the current set of dire circumstances, continue to encourage people to find safety in gold.
Once the unnatural deleveraging and panic selling pressure becomes exhausted, as analysts say it has to eventually, gold looks set to explode much higher. It is merely a question of when. With that in mind, let’s look at the gold and silver ETFs and the Commitments of Traders reports from the CFTC.
First a scheduling note. Due to travel conflicts the next Got Gold Report will likely be in three weeks instead of two.
Gold ETFs
SPDR Gold Shares, [GLD], the largest gold exchange traded fund, reported adding 6.12 to 755.06 tonnes of gold bars held for its investors by a custodian in London.
Source for data SPDR Gold Trust
So that the price of each share of GLD tracks very closely with the price of 1/10 ounce of gold (less accumulated fees), authorized market participants (AMPs) have to add metal and increase the shares in the trading float when buying pressure strongly outstrips selling pressure. The reverse occurs when selling pressure overwhelms buying pressure.
Gold holdings for the U.K. equivalent to GLD, LyxOR Gold Bullion Securities Limited, dipped 0.63 tonnes for the week, to 119.18 tonnes of gold held. Barclay’s iShares COMEX Gold Trust [IAU] gold holdings remained flat at 63.88 tonnes of gold held for its investors.
For the week ending Friday, 11/21, all of the gold ETFs sponsored by the World Gold Council showed a collective addition of 5.76 tonnes to their gold holdings to 912.66 tonnes worth $22.8 billion.
From the additions to the world’s gold ETF holdings it is clear that there was more buying pressure than selling pressure for gold ETFs over the past week.
SLV Metal Holdings
Metal holdings for Barclay’s iShares Silver Trust [SLV], fell by 61.41 tonnes this week, to 6,686.75 tonnes of silver metal held for its investors by custodians in London.
This, while the major equities markets were getting yet another brutal pasting Monday-Thursday. With so much fear and forced selling out there, a small reduction of 61.41 tonnes is actually less than we would have expected, especially given the sometimes wider than normal spread between the share price of SLV and its per-share NAV Monday and Tuesday.
Source for data Barclay’s iShares Silver Trust.
Gold COT Changes
In the Tuesday 11/18 Commodities Futures Trading Commission (CFTC) commitments of traders report (COT) for gold metal the COMEX large commercials (LCs) collective combined net short positions (LCNS) inched 1,620 contracts or 2.33% higher from a very low 69,496 to a still very low 71,116 contracts net short Tuesday to Tuesday as spot (paper contract) gold rose $6.31 or 0.86% from $731.89 to $738.20.
Gold established the same trading floor on three consecutive days to begin the week, failing to dip below $731 each day. Until breakout day Friday, it actually traded in a tighter range than it has for weeks, between the $730s and $760s. Then Friday gold surged decisively higher, breaking through implied resistance of around $756 for a last trade of $800.52 on the cash market.
Gold versus the commercial net short positions as of the Tuesday COT cutoff:
Source for data CFTC for COT, cash market for gold.
The chart below compares the COMEX commercial net short position with the total open interest (LCNS:TO).
Source for data CFTC for COT, cash market for gold
Repeating from the last full Got Gold Report two weeks ago: “Under more normal market conditions such a very low LCNS would be extraordinarily bullish, especially the low percentage of LCNS to the total open which, up to now at least, has been a fairly reliable bullish indicator below 27%. Now that we have transitioned into a market that is abnormal in the extreme, it will definitely be interesting to see if this indicator remains reliable.
Should gold catch a bid in the coming few weeks, then this indicator is (excuse me) ‘as good as gold.’”
Well, so far it looks like the LCNS:TO indicator came through again, but it surprisingly took two weeks for the move higher to show.
Silver COT
As silver fell $0.39 or 3.89% COT reporting Tuesday to Tuesday (from $10.03 to $9.64 on the cash market), the large commercial COMEX silver traders (LCs) decreased their collective net short positioning (LCNS) by a miniscule 506 or 1.81% to 27,458 contracts of net short exposure, while the total open interest on the COMEX fell yet another 2,641 contracts to a very low 91,853 COMEX 5,000-ounce contracts.
Source for base data CFTC for LCNS, London Silver Fix for silver from LBMA until 2-26-08 then cash market
What is kind of interesting about the little change in LCNS is that silver actually tested the $8.80s on Thursday, November 13 before popping back up to close that day at $9.42 on the cash market. The trading that day was suggestive of at least some short covering, but we find in this latest CFTC report that there was little in the way of commercial short covering.
Silver repeated the feat again this week, testing $8.83 on Thursday, but this time closing closer to the low at $8.96 that day. Then on Friday, as gold powered higher, silver reacted too, but in a more muted fashion for a last trade of $9.65. Although that was a 7.7% one-day move higher, the action in silver seemed tame in comparison to gold.
It will be doubly interesting to see if Friday's move higher was the result of significant commercial short covering, but we will have to wait until the next COT report to know.
For context, the chart below compares the silver LCNS to the total number of open contracts on the COMEX, division of NYMEX. When compared to all the contracts open, the commercial net short positioning in silver futures amounts to a still low 29.89%.
Source for base data CFTC for LCNS, London Silver Fix for silver from LBMA until 2-26-08 then cash market
The very low silver LCNS is supportive of higher prices historically.
Odds and Ends
The gold:silver ratio (GSR), which reached a 16-year high in October of 88 ounces of silver to one ounce of gold, has once again spiked back up to the level that should attract robust conversion of gold to silver. As of the Friday close the GSR was back up to 82.95 ounces of silver to one ounce of gold using cash market closing figures.
While the very high GSR is an ominous sign for global equity markets generally, it may also accelerate the exodus of silver metal from the COMEX member warehouses as investors take advantage of the rare opportunity to convert gold into silver at such historically high conversion rates.
Speaking of the COMEX silver inventories, just since October 17, the inventory of silver metal of COMEX depositories has dropped by an eye opening 4,932,992 ounces. That’s metal leaving the COMEX for the physical market or for industry.
Source for data NYMEX.com
So long as the futures markets continue to grossly under price silver relative to the popular physical markets, we can expect the trend of silver metal exiting the COMEX for the real physical markets to continue and probably to accelerate into December.
End Notes
There is plenty of very scary news out there this week for people to consume, so I won’t add any at this time. Instead, here’s a repeat of the close in the last full report.
At the same time the newswires are flooded with reports of mining companies having to close existing mines due to low prices of metals. New mines that were due to come on line are also being shelved. So, at the same time that we have the highest premiums since 1980 for physical gold and silver – when one cannot actually find gold and silver bullion at anything even close to the futures-dominated spot price - we learn that there is a huge increase in the number of “currencies” out there about to be chasing a vastly reduced amount of physical production.
Short term virtually anything is possible in this crazy futures-dominated market, but shouldn’t that be a potent recipe for an explosion in precious metals prices over the longer term? Got gold? Got Silver? Got mining shares?
Got Gold Report Charts
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1-year daily gold
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2-year weekly gold
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1-year daily silver
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2-year weekly silver
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3-year weekly HUI
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2-year weekly Gold:HUI ratio
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2-year weekly U.S. dollar index
That’s it for this offering of the Got Gold Report. Until next time, hopefully in about three weeks, as always, MIND YOUR STOPS.
The above contains opinion and commentary of the author. Each person should study the issues carefully and, as always, make their own informed decisions. Disclosure: The author currently holds a long position in iShares Silver Trust, SPDR Gold Shares and holds various long positions in mining and exploration companies.
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John Mauldin with some thoughts on deflation. I enjoy reading Mr Mauldin although I don't always agree with him. He always stimulates the thought processes.
.........al
Posted Nov 21 2008, 10:52 PM
by John Mauldin
Leverage Is an 8 Letter Word
If Loans Are So Cheap, Why Don't They Sell?
Deflation and Helicopters: Time for a Review
Commercial Property Loans Start to Haunt the Banks
Warren Makes a Bet
Thanksgiving, Moving, and New Orleans
Leverage is an eight-letter word, which the markets now regard as twice as bad as the two four-letter words debt and pain (or fill in your own four-letter words). This week I try to give some insight into what is happening in the credit markets, some of it below the radar screen of most analysts. We will look at the potential for deflation and the Fed's response. There is a lot to cover, so let's jump right in.
If Loans Are So Cheap, Why Don't They Sell?
I talked with a friend who runs a collateralized loan obligation fund, or CLO. There are a lot of these funds in the Shadow Banking System. Typically they buy certain types of debt, with a lot of it in the bank loan space. In the "old" days of the last few years, banks would make loans to corporations and then sell them to CLOs and other institutions, making a spread on the loan and a profit on the servicing business. Some funds would typically leverage up somewhat and make a decent return.
Today, many highly rated loans are selling for 80 cents on the dollar. There is nothing wrong with the collateral or the corporation which owes the money; there is just no one with ready cash to buy the loans. I asked my friend why he doesn't buy them, since they offer very good returns.
The problem is that his fund, and most other CLOs, have covenants in their offering documents that prevent them from buying debt at less than 85 cents on the dollar. That covenant is a good thing in normal markets, as it prevents possible mischief by the manager, but right now it means that a lot of opportunity is being missed. The only way he can buy these highly undervalued bank loans is to create a new fund, which he is in the process of doing. But getting the money is tough, as the pension funds and endowments who would normally be the investors are waiting for cash to come from their redemptions in other funds, which are of course selling whatever they can to raise money for the redemptions, including these very same bank loans. Can you say vicious circle?
The good news is that the market is (albeit slowly) responding to low prices and a market for undervalued assets. But the bad news is that it could be months before there will be meaningful recovery in asset prices. In the meantime, these and many other assets are being marked down and impairing the balance sheet of a lot of banks, funds, and institutions.
As an aside, the prices for loans made for leverage buyouts in the last few years have fallen significantly. Anybody want to buy some loans made on the Chrysler sale to private equity fund Cerberus? I think not. Just because a loan is cheap does not mean it is necessarily a reasonable value.
Forbes.com
Commercial Property Loans Start to Haunt the Banks
As I have written for a very long time, there are two aspects to the current recession and financial crisis. The first is the fallout from the subprime crisis, which has morphed into a full-blown credit crisis. That coupled with a housing crisis has sent the nation into what looks like it will be the worst recession since 1974.
The second phase to hit banks and lending institutions is the normal recession problem of increased losses on all sorts of loans. Credit cards, home equity loans, residential mortgages, and especially commercial property mortgages all suffer during a recession. As documented a few letters ago, default rates are soaring on all types of consumer loans. That is what you would expect to happen in a recession. The problem is that many of the larger banks have already had their capital depleted dealing with the credit crisis. Now they are going to have to raise even more capital (or reduce lending) to deal with the normal loan problems that come with a recession.
Let's look at a few charts from www.markit.com which show the stress in commercial property lending. A number of very large firms come together to create a market index for commercial mortgage-backed securities, or CMBS (which is listed at market.com). They put 25 different commercial property trusts, created by JPMorgan, Merrill, UBS (the usual suspects), and so on into the index. Traders can then trade on the market value of the underlying combined assets by trading the index. In principle, this is just like trading a stock index that gives you exposure to all the stocks included in the index.
If you have bought commercial mortgages and want to hedge your portfolio, you can do so with this index, or if you want to sell protection (insurance) you can also do so. The price is determined by the spread between the coupon and (I believe) the 10-year US Treasury bond. From trading at a spread of 100 basis points in May and 200 basis points (bps) in July, the spread on AAA-rated commercial mortgages skyrocketed in the last few weeks to 850 before settling back to 667, or more than six times what it was just a few months ago.
According to the Wall Street Journal, at the peak a few days ago this meant that the AAA part of this index was trading at $.70 on the dollar. That suggests there will be losses of 70% on the lower tranches!
Every six months the 12 investment banks that help create the index build a new index comprised of recently created trusts composed of hundreds of individual mortgages. As with most asset-backed paper, these trusts are divided into different tranches, with the highest-rated tranche getting the lowest return but first call on the return of principle and interest. Lower-rated tranches take successively more risk.
There are seven different indexes on the Markit platform, from AAA to lowly BB. Each index is composed of the corresponding tranche in the 25 trusts within the index. Let's look at what the lowest-rated tranche has done.
The lowest tranche is now trading at 4,750 basis points or, if you add in the Treasury price, at over 50%! If you were an institution or fund and wanted to buy protection on a BB-rated CMBS in your portfolio, you would have to be willing to pay 50% annual interest!
On the web site, they note that they have not created a new series that was planned for October 25th of this year, as there have not been enough new commercial mortgages created to actually build an index. Why? Because any commercial mortgages that the banks now make will have to be kept on the books of those banks, since the price to securitize the loans is prohibitive. Is it any wonder there has been a serious reduction in large commercial property loans?
On a rather sad note, look at the logos of the banks involved in creating this index, from the marketing brochure that Markit uses to inform potential buyers and sellers of the CMBS index:
Fourteen banks were involved as of a few months ago, but now? Bear, Lehman, Wachovia, and Merrill have either passed from this world or have been swallowed up. It makes you wonder who is next. (Side bet: the Treasury or Fed will inject some capital into Citibank this weekend.)
We could do the same analysis on high-yield bonds. Interest on high-yield bonds is now approaching 20%. Credit default swaps on many issues are simply out of sight. That means that if a lower-rated company wanted to issue bonds, they would have to pay 20% or more! There are very few projects that can justify 20% in a low-inflation world. And without access to capital, it will be difficult for businesses to grow. It also means they have to cut costs and jobs. As noted above, even highly rated corporate bonds are selling at steep discounts. Deleveraging is going to be a problem for a few years. We need to get used to it.
Deflation and Helicopters: Time for a Review
I wrote six years ago (November 2002) about Ben Bernanke's speech on deflation, where he tried to make a joke about beating back deflation by dropping money from helicopters. He was immediately tagged as "Helicopter Ben." My thoughts on that speech took up about half of one chapter in Bull's Eye Investing, and I still think it is a very important speech.
I have been saying for a long time that we would be dealing with deflation next year, and that has been met with a lot of reader skepticism. And when inflation hit 5.6% last July, that skepticism was understandable. But this would be a strange world indeed if you had the twin bubbles of housing and credit burst and didn't see a whiff of deflation. Recessions and the bursting of bubbles are by definition deflationary.
And I have been giving thought to the idea that we may have seen a mini-bubble in the price of many commodities, and that bubble has been bursting as well. And since commodity prices were the main cause of inflation, as they retreat the rise in the inflation rate is retreating. This week the latest inflation numbers showed a drop to 3.7% on a year-over-year basis.
But the Consumer Price Index (CPI) fell by a full 1% in October. You have to go back to the 1930s to find a one-month drop as large. And I don't think this is just a one-month anomaly caused by falling energy prices. The housing component, which is 32% of the index, is based on Owners' Equivalent Rents (OER). As I have written elsewhere, over very long periods of time this works as well as actual housing prices. You simply have to pick your basis for comparison and stick with it.
If, for instance, we had been using house prices for the last ten years, we would have seen large increases in inflation up until a year ago, and since then the index would have been in outright (and serious) deflation. But we use OER, so prices in the CPI have been more stable. But that looks like it could be changing.
OER has been rising steadily over the last decade as rents went up. The index showed a 3% rise in 2007, for instance. The recent trend has been down from there, and last month there was no rise in the cost of shelter. Given the number of houses for sale and a weakened economy, I think it is likely we will see outright reductions in the cost of rent, which will translate into a much lower inflation number.
Lower prices are a two-way street. When they result from improved productivity and efficiency, that is considered to be a good thing. But when they are the result of lower demand, that can be problematic.
There is the likelihood that the Fed will lower rates to 50 basis points, and some major and very seasoned economists are now predicting a zero percent Fed funds rate early next year. Given that Fed funds are actually trading at 38 basis points, a drop to 50 basis points would change nothing on a practical level. (Can we say Japan?)
With that in mind, let's revisit Bernanke's speech. Every central banker is mindful of Japan and the 1930s in the US. Deflation is something that will not be allowed. But what if the Fed lowers interest rates to zero and demand does not pick up, along with a little inflation? Quoting Ben:
"To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys. Alternatively, the Fed could find other ways of injecting money into the system -- for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities. Each method of adding money to the economy has advantages and drawbacks, both technical and economic. One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies. Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation."
Just a thought here. We could see real drops in the CPI next year. We could also see a US government deficit approach $1 trillion and go right on through that heretofore unthinkable number. As I wrote last week, a reduced trade deficit means that there will be fewer dollars abroad to buy our debt. The difference will have to be made up by either increased savings in the US or higher rates to attract buyers OR the Fed monetizing the debt.
I think the Fed would be highly reluctant to monetize debt in a period of inflation like we have been in, no matter what problems we face. But in a period where we could be facing deflation? It is very possible they would consider monetizing the debt, as will central banks all over the world.
We are in unprecedented times. A (1) deep recession coupled with (2) financial institutions deleveraging, added to (3) a consumer who is going to be forced to save more and spend less while (4) commodity prices are falling, on top of (5) a serious slowdown in the velocity of money, and you have the makings of a perfect deflationary storm. The Fed would be forced to fight it.
What would they do if lowering the Fed rate to zero was not enough? As Bernanke stated, they would simply set the rates for 1- and 2-year notes and further out the curve if they felt they needed to. And if Goldman Sachs is right in its latest revised forecast, the economy is going to need some help:
"Goldman said it now expects U.S. GDP to fall 5 percent in the current quarter, with unemployment rate reaching 9 percent in the fourth quarter of 2009. It also forecast the 10-year yield to fall to 2.75 percent by the end of the first quarter of 2009, as compared to previously estimated 3.5 percent.
" 'The combination of weaker real activity and slower inflation means that profits of U.S. companies will fall even more sharply than we had previously expected,' Goldman said in a note to clients. Goldman now sees economic profits falling 25 percent in 2009 on an annual average basis, the biggest drop since 1938. It had earlier expected a fall of 20 percent. Goldman expects unemployment rates to further go up in 2010 as well, as there is little chance of the economy returning to trend growth by that year."
Other mainstream economists think GDP might fall this quarter by as much as 5%. That does not bode well for retails sales this Christmas.
Forbes.com
Warren Makes a Bet
And let's close on this note brought to my attention by Bill King.
"MSN Money's John Markman: Shares of Warren Buffett's insurance holding company are on the ropes this month, plunging 30% in part because the famed investor dabbled in an area of the market he has long publicly derided: derivatives. And due to a tangled web of financial relationships, they may be taking Goldman Sachs shares down with them. Investors are concerned about a $37-billion bet that Buffett made last year that U.S. and world equity values would be higher in 15 to 20 years than they were then, when the Dow Jones Industrials were trading around 13,000. Through his firm, Berkshire Hathaway, Buffett sold option contracts, known as "naked puts" to an undisclosed group of investors for around $4.85 billion, reportedly using Goldman as broker...
"Because of its solid-gold credit rating, Berkshire Hathaway was not required to put up collateral to make this trade. But now rumors are flying on Wall Street that the owners of the contracts have demanded that broker Goldman Sachs put up collateral for the rest of the amount due. Since the value of the trade could be infinite, the collateral demands are said to be large, and fears that Goldman will struggle to make good on its obligation has panicked shareholders. Indeed one theory making the rounds this week is that Buffett put $5 billion into Goldman at around $125 per share in September not as an investment but to help provide funds for the collateral.
http://blogs.moneycentral.msn.com/topstocks/archive/2008/11/20/buffett-s-huge-derivatives-bet-proves-costly.aspx
"Isn't this the oracle that called derivatives, 'financial weapons of mass destruction'?"
I personally think that Warren made a very good bet. I would be shocked if the Dow was not at 13,000 in 20 years. Inflation will do most of that heavy lifting. But it does make for an interesting discussion now.
In all reality, no one really knows what gold will do in a deflationary environment. In all US history, when we have had deflation, the price of gold has been federally regulated. We have not had a deflationary period since Nixon took the lid off of gold and it has risen and fallen on it's own merits. All we can do is speculate on what might happen if we enter a time of deflation. It would definately be a time where I would be consulting the charts a lot closer.
......al
mmayr- I just wanted to pass on my thanks for your writings. It takes guts to tell it like it is. Especially the Kennedy assasination articles. For the reasons I have stated here in the past, I have always felt that foreign entities had nothing to do with that event, nor was it a deranged individual with unparalleled marksmanship. For many years afterward when the topic came up in conversation, I have always expressed my speculations of the bankers quite possibly being responsible for JFK's demise. People would look at me like I was from Mars or somewhere out there. Every year Congressman Ron Paul introduces a bill in Congress to abolish the Federal Reserve bank. It gets little or no support and I believe that's the only reason he is still breathing air. The current mess we are in now was triggered by individuals operating within the banking system. What has been their punishment? Our representatives and especially our Federal Reserve bank has awarded them $trillions. As the economy goes farther south, so will we quite possibly see a corresponding rise in social unrest. Did they think this would not happen? If not why is the military training regular soldiers to handle uprisings within our own borders? Will they be defending our country or doing the will of the bankers indirectly through the powers of the government? Sorry to bore you, but I just had a few thoughts and had to put them somewhere.
..........al
Jim- I was playing precious metals during the Hunt runup fiasco. There was never a shortage of any type that I was aware of except at the comex where just the rumor of delivery demand on the Hunt positions caused a major panic. According to Ted Butler during that time there was 4X as much silver available as there is at present. I do watch charts as a reference, but am more a fundamentals type and think more long term than short. What I am seeing right now is shortages and delivery delays everywhere and although many are fearing deflation it would not last long if it happenned at all. Helicopter Ben is leading a worldwide effort to create as much money as necessary to fight the current problems in the financial world. It may or may not work, but either way inflation will eventually demand it's due.
........al
Could it be that they want to get what they can? Don't forget in this business, there are no repeat customers. Most people have at least enough life insurance to get a decent viewing and funeral. Cost of casket is usually not an issue with grieving family members.
......al
I tend to agree. All this "new" money being created is just digitalized for now. When it works it's way into the financial system and becomes monetized, look out gold.
...........al
FWIW, I tried emailing IR asking about inventory taken to the convention and what they came home with. Received a nice rsponse but was told that information would not be available to individuals until it was released to the public.
.....al
and with large pensions, secret service protection, and many $$$ for speaking engagements. I think I have figured out why the dems didn't impeach and try Bush. Look what they would have gotten had they succeeded.
.....al
Switzerland's shock rate cut unnerves markets
Switzerland has slashed interest rates a full percentage point to 1pc in an emergency move, underlining the gravity of the credit crunch now spreading across Europe.
By Ambrose Evans-Pritchard
Last Updated: 7:47PM GMT 20 Nov 2008
The European Central Bank is expected to follow suit with a large cut at its next meeting in December, if not before.
The Swiss National Bank (SNB), viewed as a bastion of hard-money rigour, said inflation risks had subsided with the sharp fall in oil and raw material prices since the early summer. "The international economic conditions have worsened appreciably, bringing a higher risk of a marked slowdown in economic activity in Switzerland next year," it said.
The surge in the Swiss franc in recent months has plagued industrial companies. Exports fell 2.8pc in October compared to a year earlier. The country's KOF institute forecasts outright recession over the winter.
The SNB may also be worried about Hungary, Latvia, Poland, and the Balkan countries where large numbers of people have taken out mortgages, car loans, and credit card debt in Swiss francs, disregarding the exchange rate risk.
The surge in the franc over recent months against currencies across Eastern Europe has compounded the pain for a region already facing extreme pressure. Hungary has already secured an IMF loan, and Latvia requested a rescue package yesterday. The Bank for International Settlements says foreign loans in Swiss francs now exceed $630bn.
Traders in the City said the shock move raised concerns that the Swiss banking system may be in more serious trouble than generally understood. The Swiss banks have lent the equivalent of 50pc of the country's GDP to emerging markets, according to the BIS.
Given that total liabilities of UBS and Credit Suisse are equal to eight times GDP, the central bank must have become deeply alarmed by the plunge in the share price of the two lenders this week. UBS has shed 61pc of its value in six months.
Michael Klawitter, an economist at Dresdner Kleinwort, said the SNB's move is another step towards zero interest rates across the G10 bloc of developed countries for the first time in history. The United States has already cut rates to 1pc, with further moves expected early next year to prevent the credit crisis spiralling out of control. Japan has cut to 0.25pc.
Julian Callow, Europe economist at Barclays Capital, said it was highly unusual for the SNB to cut rates in an unscheduled meeting. "A hundred basis points is a big move and it shows how much damage there has been to the financial markets since US changed its rescue plans under the TARP," he said.
The SNB's president, Jean-Pierre Roth, said Switzerland had not run out of ammunition. "We're at 1pc, so still have some margin for action," he said.
Is China Ready to Buy Gold at Last?
By: Jason Hommel, Silver Stock Report
-- Posted 19 November, 2008 | Digg This ArticleDigg It! | Discuss This Article - Comments: 6
(Do the math on this one!)
Silver Stock Report
There has been a recent flurry of news articles saying China may begin to diversify into Gold. But the articles conclude that China will move slowly, over years, so as to not disturb the markets. Funny.
It's funny because it's like they don't know basic math.
China wants 4000 tonnes of gold, to help "diversify" their $1.9 trillion in U.S. bonds. It's quite a joke. Please bear with me as I explain.
A tonne of gold is 32,151 ounces. Please search "troy ounces per tonne" at google to confirm, because this one bit of information, and a simple calculator, can help you unlock and decipher the meaning of what you read in the news regarding the gold market, as gold at the national level is usually always quoted in terms of tonnes.
The total ounces China is seeking, is thus: 4000 tonnes x 32,151 ounces/tonne = 128,604,000, or 128.6 million ounces.
That's an interesting number because it is about half of the U.S. official gold reserves of 261 million ounces.
It's also an interesting number because the total annual gold market consumption is said to be about 4000 tonnes, while annual mine production is only about 2500 tonnes.
But let's now multiply by the current gold price, to see how much of China's reserves could be diversified if they obtained that, without disturbing the price.
At $736/oz., times 128.6 million ounces = $94649.6 million, or $94.6 billion.
That's funny, because $94.6 billion is not very much of $1.9 trillion, which is $1900 billion.
What's the percentage? Simple: $94.6 / $1900 x 100 = 5%.
See, if China diversified 5% of their reserves, they would dominate the world gold market, buying an equal amount bought by the rest of the world in a year, and that could crash the dollar by 50%, while gold prices could double!
And actually, such a diversification of $94 billion would be no diversification at all, since China has added $600 billion to their dollar holdings within the last 6-7 months, up from $1.3 trillion.
To truly diversify, they would need to sell more dollars than they are accumulating, so they really need to buy about $600 billion worth of gold, or more, in a year.
How much would a true diversification be at current prices? $600 billion / $94 billion = 6.38 times as much gold as the world buys in a year.
Please think on that, and buy silver, instead. Because as we have seen, as gold moves, silver moves higher faster, and runs out sooner, because it is more scarce.
Here is a quote that has been posted for over a year at my main page at silverstockreport.com:
"Even though the U.S. dollar is no longer backed by gold, any holder of dollars could wise up at any time and start buying silver or gold. China, for example, could spend their $1.3 (now $1.9) trillion U.S. dollars in bonds and buy gold anywhere in the world, such as Switzerland, Dubai, Tokyo. China could even send agents to buy gold at any of the 4,000 or more coin shops in the U.S. The dollar could drop 50% or more overnight, and there's not a single thing the U.S. government, you or I could do about it."
Please note the following news items:
China Should Buy Gold for Reserves, Association Says (Update2)
Nov. 14 (Bloomberg)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aO8E.6_D2tVo&refer=home
China PBOC Mulls Raising Gold Reserve By 4,000 Tons - Report
Wed, Nov 19 2008
http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=82afe43d-8d3c-494d-894d-113c196ed750
"China's central bank is considering raising its gold reserve by 4,000 metric tons from 600 tons to diversify risks brought by the country's huge foreign exchange reserves, the Guangzhou Daily reported"
Two other quick news items:
Iran switches reserves to gold - report
TEHRAN, Nov 15
http://asia.news.yahoo.com/081115/3/3s594.html
Saudi Arabia buys $3.5bn of gold in two weeks
13 November 2008
http://news.goldseek.com/PeterCooper/1226586450.php
Finally, a news item regarding China's silver.
Silver hit by rising cost of production
10 Nov 2008
http://news.alibaba.com/article/detail/metalworking/100021066-1-silver-hit-rising-cost-production.html
Key excerpt:
"The country will increasingly rely on imports to fill the needs for silver, he said. Last year, the country's net imports were 1,067 tons, compared with net exports of 1,085 tons in 2006, according to customs data provided by Zhou."
Finally, it is keenly important to put the relation of gold and silver in perspective.
The world's consumption of gold, 4000 tonnes is $94 billion.
The world annual investor demand for silver is about 100 million ounces, or $1 billion.
Do you see why silver is the far superior investment to gold? Silver will move higher much more easily, and you will make far more money in silver.
The bulk and weight of silver now, are the reasons why some avoid it, and are the exact reasons why it will perform better than gold. Fewer people take the "pain" to own it, thus, it is the more contrary investment, and will perform better.
Reminder: 10,000 ounces of silver are available at auction this Wednesday night, at http://www.seekbullion.com/
See also, smaller amounts of silver for sale daily at my Mom's silver shop at
www.seekbullion.com and even smaller amounts of silver for sale daily at
http://shop.ebay.com/merchant/jkesilver
Oh yes. My mom also told me this week that she usually gets about $1 more per ounce at ebay than at seekbullion.com. But that does not necessarily mean that seekbullion.com is cheaper, because it's not a perfectly fair comparison, since her auctions at seekbullion.com are usually over 100 oz., while at ebay, they are usually less.
This same principle, China reporters seem to fail to understand. When China moves, they will get less gold for the money, because when they move in size, they will move the market. Communists really don't understand free market principles, as a matter of general principle. But then again, neither do 99.9% of Americans, who prefer paper money, instead of real silver, and gold.
Sincerely,
Jason Hommel
but months for delivery- very key phrase, also the norm rather than the exception right now for the industry from what I've been reading.
.......al
Interesting links in this article to track ebay sales of gold and silver coins and bullion.
.....al
By Eric Lemaire
Editor, 24hGold.com
Wednesday, November 19, 2008
Many of us precious metals watchers have been trying to find a way to apprehend the real price of gold and silver, the one us peons need to pay when we want to get our hands on the real thing.
The only worldwide non-Comex public pricing system is Ebay, so I have been working on the subject for quite a while to find a way to extract the price of gold and silver out of eBay.
Thus I have the honour to present you today 24hGold's two new pages:
Gold on eBay, U.S. and Worldwide:
http://www.24hgold.com/english/buy_sell_gold_coins.aspx?co_id=0
And silver on eBay, U.S. and Worldwide:
http://www.24hgold.com/english/buy_sell_silver_coins.aspx?co_id=0
Here is how they work.
Gold and silver coins with offers on eBay appear on the page, listed by country. For each coin, you will find:
-- Its name, fine weight, and instant metal value.
-- The price of the last sales on eBay to track the price: average
price, premium over spot price of gold (or silver), the implied gold or silver value per ounce, and yesterday's average price for this specific coin.
-- The current offers on eBay in the United States and worldwide with the respective number of offers. You can click on the eBay buttons to get directly to the eBay page with all the coins for sale.
-- Various Ebay tools relevant to this coin: buy it now, newly listed, ending soonest, and completed listings.
There is also a search tool to start eBay directly if you are looking for something else.
Since eBay is different for each country, we have eBay pages for Canada, the United States, Australia, France, and the United Kingdom.
I hope that this tool will be useful to anyone who is interested in gold and silver and that it will help people get more physical in their hands, which is the key to wrecking the cartel.
I would be most grateful for ideas on how to improve these pages or new tools that would be helpful. You may contact me at:
editor@24hgold.com
I just read on another board that the phone for WIFT is disconnected. Anyone have verification on this?
..........al
Ted Butler's latest:
A Sure Thing?
By: Theodore Butler
-- Posted 18 November, 2008
The financial world is changing more quickly and radically than any of us has previously experienced. Unfortunately, losing money has become easy. At the same time, it’s more difficult to make a profit. For almost ten years I have championed the case for buying real silver. I have urged people to buy silver for the long term and to take the time to understand the facts behind my conclusions. Now that world financial conditions have become so dicey (including the 50% price drop in silver), what are the latest facts?
My greatest fear in writing about silver is that I will miss clear-cut evidence that silver is no longer a great investment. That’s why I’ve carefully examined my premises. I’ve gone over every aspect of the bullish argument I’ve made over the past years. There is no question that some facts have changed, but that doesn’t necessarily mean they have changed for the worse. I won’t beat around the bush. My examination leads me to the conclusion that silver is a better buy today than ever before. When I look at the facts straight on, they paint a picture of dramatic price gains ahead for silver.
The first thing to examine is the price decline itself. The 50% decline over a few months was the steepest decline in a quarter of a century. There is no way to minimize the severity of that decline. Did I anticipate the extent of this decline? I did not. I know there have been similar declines in other commodities, but silver’s decline is in a class by itself. Amazingly, there was no evidence of widespread selling of physical silver.
All public data sources, from ETF holdings, to government silver coin demand, to global wholesale and retail dealer premiums, indicate no net selling or glut of physical silver. All the selling was of the paper silver variety. It is no secret that leveraged speculators, including hedge funds, have been forced to de-leverage. That’s a nice way of saying there has been massive liquidation of margined paper silver positions. I doubt there has been a sale of any leveraged silver that wasn’t caused by a margin call due to falling prices. In other words, very little silver has been sold in the past few months because investors turned bearish on silver’s merits. What was sold had to be sold because of margin calls or because of charts and technical signals. That is why I have always publicly preached no margin, only cash on the barrel head.
The paper margin calls and technical selling in silver was intentionally planned and forced on us by those who held big short positions (JP Morgan Chase). There is no other plausible explanation. The big shorts needed to cause widespread selling from the leveraged longs so that the short sellers could buy back and cover their short positions. That the shorts succeeded in this induced sell-off is both good and bad news.
The bad news is that the shorts caused previously unimagined damage to innocent long holders of all types, including those with actual metal and those with mining shares. The masters of destruction, indeed. The good news is that the selling and short covering appears to be complete, as evidenced in the Commitment of Traders Report. This shows its best reading in many years for both silver and gold.
Silver is now so far below the cost of production that it will cause most primary silver miners to shut down production at some point. The shockingly low price of associated base metals, like zinc, lead and copper, are also below the marginal cost of production. They account for the bulk of silver mine output as a by-product. This is a circumstance not witnessed in recent history. Already a large number of world zinc mines have shut down and more are being mothballed every week. More than 200 million ounces of silver originate annually from zinc and lead mining. Another 200 million ounces of silver comes from copper mining. That’s 60% of world annual silver mining production. At current prices, the majority of world silver mine production will be shut down. The world cannot tolerate such a development. Clearly, the variable here is the price of silver. It must rise, and rise sharply, to maintain a reasonable level of silver mine production.
We are in the grip of a sudden severe world economic slowdown. This promises to result in a decrease, and perhaps a sharp decrease, in the amount of silver used in industrial applications. Does the fall in silver consumption mean the price of silver will be negatively impacted? In my opinion, it does not.
Even if industrial silver demand falls off, we already know that supply will fall sharply at current prices. If there is less industrial demand for silver, it is certain there will be decreased demand for industrial metals such as zinc, lead and copper. Very few people realize the extent to which silver mine production is "imprisoned" by base metal production. This silver production can only be released by zinc, lead and copper mining. As much as 60% of total silver mine output comes as a by-product of these three metals, plus another 30% from primary silver mines. A shocking 90% of all silver mine production is underwater profit wise at current metal prices. Throw in the final 10% of silver production that comes from gold mining, and it wouldn’t be misleading to say that 100% of all silver mining is currently unprofitable. I have never seen that in all the time I have studied silver.
It doesn’t matter if silver industrial demand falls off, as it will surely lead to significantly greater silver mine output losses. This vicious cycle could send silver skyrocketing. If nobody’s producing much silver, even the weakest demand would accelerate prices upward.
This is where silver’s dual role as an industrial and investment metal will come to be fully appreciated. Silver is virtually alone in its role as a vital industrial commodity and popular investment asset. A severe world economic slowdown will continue to drive increasing numbers of investors to assets that are not subject to failure or bankruptcy. Those assets that are no one else’s liability (gold and silver), will be desired all the more. Considering how little silver is available for investment, compared to gold, investment flows are likely to influence the price of silver more than gold.
The worse financial and economic conditions become, the better it should be for silver, given how much by-product output could be lost. Investment demand should more than compensate for any fall-off in industrial demand. This could create a real silver shortage more pronounced than the shortage already developing. And remember, it does not matter what overall economic conditions may be, a shortage of anything guarantees sharply higher prices.
Let me outline a scenario that looks increasingly probable. If silver does experience the shortage that I think is at hand, its price should move quickly to $20 or $30 or more, especially if the big COMEX paper short refrain from new short selling. But if base metal prices remain depressed, as is likely in a recession, there will still be a loss of by-product silver production, even though silver prices had moved sharply higher.
Lastly, the never-ending bailouts and stimuli by world governments, led by the U.S., are bound to have unintended consequences. Because there is currently a massive flight to quality underway by investors into government treasury bills and bonds, there is an ample current supply of funds, measuring in the billions and trillions, available for bailouts.
At some point, it seems reasonable that some investors currently rushing into government paper might begin to have doubts about holding all their money in government debt. For now, the immediate issue is to pump money into the system to save it from imploding. But at some point, a certain number of investors may seek safety beyond government guarantees. The only assets promising greater safety than government guarantees are tangibles, because they are liability-free. Given the rarity and scarcity of silver, even a relatively small movement of investment flows into silver can have a profound influence on price.
Throw in these additional factors. There’s still the likelihood of a major short squeeze. New uses for silver are being introduced every day. The above-ground supply has never been smaller or held in such strong and diversified hands. More potential investors become aware of this bullish silver story every day.
No matter what future economic conditions may be, good or bad, it is hard to see how silver will not fare spectacularly well. At this juncture, it’s hard not to conclude that silver is a sure thing. For safety and peace of mind and for unusually high profit potential, silver looks better than ever.
BEIJING -- China's central bank is considering raising its gold reserve by 4,000 metric tons from 600 tons to diversify risks brought by the country's huge foreign exchange reserves, the Guangzhou Daily reported, citing unnamed industry people in Hong Kong.
The newspaper didn't elaborate on the plan.
China's forex reserves, at $1.9056 trillion at the end of September, are the world's largest. U.S. dollar-denominated assets, including U.S. treasury bonds and mortgage agency bonds, account for a big proportion of the forex reserves.
gold coin shortage
By JOHN CRUDELE
Posted: 4:37 am
November 18, 2008
THERE'S a worldwide run on gold coins.
Even as the price of the precious metal itself comes under pressure along with commodities like oil and copper, people around the world are demanding so many of the valuable coins that government mints are having difficulty filling orders.
A spokesperson for the US Mint tells me that gold coins in this country, for the past month, "are being allocated because of an increased demand."
And the price that the government charges coin dealers has recently been increased by as much as 10 percent for a 10-ounce coin.
Robert Mish, a coin dealer in Menlo Park, Calif., says customers who want to purchase 200 gold coins often have to wait up to two weeks. Six months ago, he said, a purchase that size could have been filled immediately.
Someone who recently tried to purchase 100 one-ounce American Eagle gold coins in the New York City-area was turned away, even though he'd uneventfully made purchases before through the same dealer.
And even when gold coins are available, dealers report that customers are paying a bigger premium than they would have just a few months ago.
Previously, American Eagle coins were going for 5 percent over the market price of gold on the Commodity Exchange (Comex). Now the premium can be anywhere from 10 percent to 15 percent, even though the US Mint raised its price to dealers by just 3 percent for an ounce coin.
In one sense, the attraction for gold coins isn't surprising. Since ancient times, gold has been considered the safest investment to hold in times of uncertainty.
With fears of future inflation rising and concern about the value of paper currency and government-debt increasing with each new recovery plan announced in Washington and in foreign capitals, the desire to hold gold grows.
That part makes perfect sense. But there's another more puzzling aspect to the recent gold rush.
Even as the demand for gold coins such as the Canadian Maple Leaf or the Krugerrand of South Africa has grown, the market price of the precious metal itself is off its highs.
In early October, the price of an ounce of gold on the spot market was about $930 an ounce. With the commodities bubble bursting in recent months, gold declined into the upper $600 range. Spot gold closed yesterday at $739.90, down $2.60.
Bill Murphy, chairman of the Gold Anti-Trust Action Committee, says the price of spot gold is even more perplexing given the demand for coins and the fact that central banks in Europe have stopped selling gold into the open market.
"Gold should be moving up," Murphy says. "How could there be such a dichotomy between the historic high premium for coins all over the world and the low Comex price?"
His answer? "Today the public is buying gold like crazy, but the US government and the banks that hold bullion are intentionally keeping the price down."
Ah, but that column will have to wait for another day.
*
Finally, someone in Washington is complaining about the coziness between the government and Goldman Sachs - which, incidentally, has been going on unfettered for the greater part of two decades.
If you've been reading this column for any length of time, you already know I have been griping loudly about the obvious inappropriateness of this Washington/Wall Street liaison and have spent considerable energy outlining my suspicions.
Now, Iowa Sen. Charles Grassley, the senior Republican on the Senate Finance Committee, is asking the inspector general of the US Treasury to investigate whether some government officials who formerly worked at Goldman let their "relationships" cloud their judgment during the merger of Wells Fargo and Wachovia.
In case you aren't up on the Goldman-to-govern ment express train, cur rent Treasury Secretary Hank Paulson is a for mer Goldman chairman, as was Robert Rubin who headed the department during Bill Clinton's presidency.
And more Goldman execs are being mentioned for the Treasury job in President-elect Barack Obama's administration.
Specifically, Grassley is concerned about a tax code change that paved the way for the acquisition of Wachovia by Wells Fargo. An ex-Goldman executive was leading Wachovia at the time of that deal.
Here's the answer he'll get from Treasury and Paulson: these are dangerous times and anything that was done was for the good of the country. In other words, they'll drag out the old national security argument.
Grassley will become a minnow in the next Democrat-controlled Congress. But the Democrats need to take up the baton, turn it into a club and see just what Paulson has been up to.
As I've written before, Paulson has admitted that part of his job was to keep in touch with "market participants." Calling his friends on Wall Street - and especially at Goldman - would be an odd extension of the role of Treasury secretary and I certainly would like to know what he felt compelled to tell these folks.
Like - did Paulson leak to Wall Street last August the fact that the Federal Reserve was about to begin interest-rate cuts?
All Grassley or the Democrats need to do is subpoena Paulson's phone records and meeting minutes of his secretive President's Working Group on Financial Markets. But I don't think anyone in Washington has the nerve. john.crudele@nypost.com
little blurb from Frank Veneroso. I regard Mr Veneroso as one of the top few who have a real handle on the gold market. The link is to the whole article, but I just pasted the small section from Mr V.
.........al
http://www.stockhouse.com/Columnists/2008/November/17/Issue-No-1-To-adopt-or-adapt-Ticker-Trax
Frank Veneroso, a somewhat secretive market strategist, probably qualifies as both early adopter and adapter. Frank, when I first met him about five years ago, had largely been keeping his investment ideas to himself and a small group of select and wealthy clients. At the time, Veneroso was operating out of several locations, and I was fortunate in that one of the man’s offices was just up the block from where we were brewing my beloved CBS MarketWatch along the outskirts of San Francisco’s Financial District.
At the time, Frank V. believed strongly that governments were performing a kind of intervention in the flow of the planet’s money – largely by depressing the price of gold. On the WWW, I can still find some of that reporting I did on Veneroso. Click here to see it.
I am fortunate to catch up briefly with Frank Veneroso, who was absolutely spot-on about the sharp decline in values for commodity prices after hard assets notched a new high this past June. I believe he is based in New Hampshire these days. I asked him about gold coins and the premiums these coins are holding as investors start to seek alternatives to the planet’s currency exchange system, which is erupting on a daily basis.
Veneroso told me Monday (today) he does not follow the “physical gold market” that coins represent. But he feels good about adapting his “wildly bullish” view of gold when he saw the fiscal turmoil coming up the road.
In June, he says, “I was wildly bearish on commodities. I warned that the world would come apart and the commodity bust would take down gold and gold stocks and that a nuclear winter was coming in base metals and the other non-gold metal stocks would enter that nuclear winter. Of course I was too early. Anyone with any real understanding of the fundamentals had to be. And then of course when the bust came it was the worst in history.”
Veneroso continues, “It is not over for the base metals and other commodities. When the manipulations that went on come out, there will be a second leg to the revulsion. The biggest manipulations in history (they are). As for gold, I am wildly bullish. But the hedge funds remain big net longs. That worries me because there is huge fraud in the hedge fund sector. When that comes out, the investors will pull out almost all their money from that sector.”
And more from Frank V.: “But that aside, the U.S. is on a path of quantitative easing that the world has never seen. All economies will super ease. But the U.S. will be the worst. It is amazing to me that this is not issue No. 1 in financial markets. The hedge funds and investment banks have all gone super bullish on the dollar. This is just another hedge fund investment bank craze with a lot of herding and manipulation. They keep talking about a shortage of dollars when the U.S. is the world’s mega debtor and the world’s mega current account deficit economy. They keep talking about the dollar as a safe haven when the locus of economic weakness and financial crisis is here and the Federal Reserve is clearly on a path to debase the dollar because of the debt deflation here.
And finally: “It’s as crazy as the case they made for commodities in the first half, when the world economy was weakening, supply and demand responses were well under way and prices had gone higher in real terms than in any prior cycle in history. This is the last desperate bubble for this failing crowd. And when they are exhausted the dollar will fall very hard and gold will be released to the upside. That is all I know,” Mr. Veneroso says.
This is all we know and all we need to know. I believe that.
available silve, maybe-, I just received this email and thought I'd pass it along if anyone was interested. 100 oz silver bars are really scarce.
......al
This message is going out to the Silver Investor mailing list. We have had numerous requests to help people find a source for 100 0z. Silver Bars. It took some work and effort but a source has been located!! Please note, these bars are 0.999 (triple nine) fine silver!! These are NOT Johnson Matthey or Engelhard bars. These are known in the trade as generic bars, but let's be real with one another, any .999 fine silver bar is just that it might have a different hallmark but it is equal in quality to any other bar of the same fineness. In fact it would not surprise me that at some point these 100 0z. bars become very recognized by the marketplace.
Miles Franklin has obtained a source for these bars and at this point it seems that Miles Franklin will be able to keep supplied with these bars for the foreseeable future.
Miles Franklin was one of the highest rated dealers in our bullion sellers report and we are letting our readers know that at present Miles Franklin has about Two Hundred (100 0z.) silver bars.
Call Miles Franklin Toll Free for details at: (800) 822-8080
Sincerely,
David Morgan
A little OT here, but rather than sticking the cash UTM, you may want to take a look at some of the Canroyals. Many are paying well over 20% in dividends right now and paying monthly. Canada is not going to get hit like the US as they have far more to export than dollars and jobs like the US does.
.....al
the only time I open the safe is to put more IN!
a wise move indeed.
.........al
more on spot/real price separation-
http://www.resourceinvestor.com/pebble.asp?relid=47994
Got Gold Report – Gold, Silver Premiums Highest in Years
By Gene Arensberg
16 Nov 2008 at 12:00 AM GMT-05:00
A lack of physical bullion supply at the same time of extremely strong demand for popular small bullion items coupled with artificially low futures dominated spot prices for gold and silver resulted in extraordinarily high premiums for virtually all bullion products in October. The very high premiums continue and availability remains tight.
ATLANTA (ResourceInvestor.com) -- All over North America coin and bullion dealers face a frustrating and difficult challenge. They have customers who want to buy gold and silver bullion items, lots of customers right now, but they are finding it very difficult to obtain the popular bullion items their customers really want. Consequently, the real physical metal bullion market is responding the only way it can in the condition of too much demand for available supply. The physical market is responding with much higher, near record premiums.
Premiums are the amount charged and paid by dealers over the prevailing spot or cash price of bullion.
Why the divergence in prices between the COMEX and physical markets?
Many analysts and market watchers have concluded that the absurd circumstance of plunging, artificially low spot bullion prices contemporaneous with extremely high demand seeking a very limited physical supply is a consequence of direct government intervention into the free markets. The most egregious example of that intervention occurred in July, the period BMO’s Donald Coxe called the “July Massacre,” covered in an October 27 Got Gold Report.
Just about anyone could well ask the question, how can spot prices be plunging when there isn’t any metal to be had at these prices? Aren’t the free markets supposed to answer to the physical markets?
Fact is, that physical metal is available at the spot prices, but only directly from the exchanges themselves as covered in a special Got Gold Report on October 24. That’s for investors who wish to put away at least 100 ounces of gold or 5,000 ounces of silver. However inconvenient, investors are able to actually buy futures contracts (at spot) and then demand delivery of them, but not until December. So, in a very real sense, the shortages of physical metal on the street today are for the smaller, more popular forms of gold and silver bullion. Just below we’ll take a look at just how those shortages have resulted in extremely high premiums for some of the most popular bullion products in some startling graphs, but first let’s look at one reason why.
Who said it was supposed to be fair?
At the moment the main issue is that the futures markets, which trade paper contracts for the future delivery of large amounts of gold and silver, have seen an exodus of speculative buying pressure giving a very small number of very large hedgers and short sellers superhuman strength to drive spot prices lower despite the extraordinary popular demand for the metal on the street.
For example, as reported by the Commodities Futures Trading Commission (CFTC) Bank Participation in Futures Markets Report on November 4, just 3 U.S. banks held a gigantic portion of all the commercial net short positioning on the COMEX, division of NYMEX.
According to that CFTC report, the three U.S. banks held a net short position of 38,949 contracts in gold futures. All traders classed as commercial held 76,406 contracts net short on November 4 with gold then at $763.39, so the three U.S. banks collectively held a staggering 50.98% of all commercial net short positions on the COMEX.
One could rightly suppose that if any one entity had such a large short position they might well be tempted to defend it. (Others might say they have no choice but to defend it.) The way to defend a large short position is to keep downward pressure on the commodity. There are very few entities that have the horsepower to achieve such trading dominance, but the three U.S. banks in question apparently do have that power.
As shocking and infuriating as that potentially illegal positioning in gold futures appears, it pales in comparison to the banks’ positioning in silver on the COMEX.
Again, as of November 4, just two U.S. banks held 22,684 contracts net short in silver. All traders classed as commercial by the CFTC held a collective net short position of 27,908 contracts with silver then at $10.20 the ounce. So, just two big U.S. banks held a gargantuan 81.28% of all the collective commercial net short positioning on the COMEX, division of NYMEX.
It is not even fair to call the two U.S. banks position a “net short” position. The banks were so certain that they could drive the futures price of silver lower on November 4, that they did not hold a single long contract for silver then. No wonder silver has since tested as low as the $8.40s on the cash market.
No, that’s not fair at all, but it apparently is fine with today’s regulators at the Commodities Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).
When there is a government-allowed imbalance in the futures markets in the strength of the opposing forces of speculators versus hedgers and short sellers, (between buy and sell), such as now, it can cause the normal price discovery purposes of the exchange to become dysfunctional for a time.
Hedgers take positions in futures markets to offset corresponding opposite positions in other markets in order to protect against adverse price movement. Short sellers profit if the price falls.
Pressure building for change
Chris Powell, of the Gold Anti-Trust Action Committee (GATA) kicked off the very important New Orleans Investment Conference this week with a broadside against the continued dominance of the futures market by a few, very powerful and sinister forces. In his comments, published on the GATA website, Powell summed up the current status thusly:
“With infinite legal tender and derivatives you can push the futures price of a commodity below its production costs and below its free-market price for a while, but you risk causing shortages. And of course that's what we have in gold and silver right now -- falling prices for the paper promises of metal even as little real metal is to be had and the spread between the futures price and the real price grows.”
This report believes that the lack of speculative long buying pressure from shell shocked futures traders may have temporarily given the two or three big U.S. banks holding enormously large short positions the edge to drive down bullion prices with impunity since July, but that situation will eventually reverse itself. Either speculative buying interest will return to the futures markets with enough force to overwhelm the dominant, but increasingly isolated short sellers, or else the exchanges will lose so much of the underlying physical metal from their warehouses to the physical market to convince them that prices have gone awry.
Goodness, look at the gold and silver premiums
In the last Got Gold Report we promised a new service which tracks the premiums being charged and paid by dealers on a few very popular bullion items. We decided to concentrate on four of the most popular bullion items, 1-ounce U.S. gold eagles, 1-ounce South African krugerrands, 1-ounce U.S. silver eagles and $1,000 face value bags of 90% silver old U.S. coins.
We looked for a consistently reliable source for tracking purposes and considered several options. In the end we settled on information published in the Coin Dealer Newsletter (CDN), a very respected and widely used source by the coin and bullion industry. Published weekly in paper form and on the web, just about every coin and bullion dealer subscribes to the “Grey Sheet” as it is known in the trade.
Using the weekly quotes for dealer to dealer transactions, below is what has been happening in the real physical bullion markets according to the most respected pricing voice of the industry, the CDN. The charts below all cover a 3-year period using the last week of each month.
First up is the chart for 1-ounce U.S. gold eagles.
For most of 2007 the premiums charged by dealers over spot for gold eagles stayed under $15. By the end of October CDN reported that gold eagles were fetching $46.50 over spot gold of $741.70.
Next let’s look at 1-ounce gold South African krugerrands.
According to CDN, by the last week of October, K-rands commanded a $35 dealer to dealer premium, up hugely from its near-constant minimum premium of around $3 for most of 2007.
Next up is 1-ounce U.S. silver eagles, possibly the most popular U.S. bullion coin.
Remember, these are dealer to dealer premiums being quoted. According to CDN, On October 31 the premium between dealers for U.S. silver eagles popped up from $1.25 over spot in July to $4.15 over. That was with silver at $9.20.
Finally, probably the most versatile and useful of all the bullion products, 90% silver U.S. coins in $1,000 bags. Often called “junk silver coins” by dealers, these old silver U.S. dimes, quarters and half dollars are anything but junk. They are 90% silver and 10% cooper and each bag is priced as though it contains 715 ounces of pure silver. The investor gets the copper for free. (They usually contain a fraction of an ounce more silver.)
Bags of 90% offer more versatility than most other bullion products. They are easily divisible into smaller dollar amounts, they are actual coins that can never go below their face value amount no matter what happens to the price of silver and they are very difficult and inconvenient to counterfeit. This item remains this report’s favorite silver bullion item.
Bags of 90% silver were in such high demand as silver fell so far down in price, that between July and October the dealer to dealer premium skied from a discount of $0.67 the ounce of silver all the way up to a $3.81 premium the ounce with silver at $9.20.
That’s a 41% premium over spot.
In some respects these charts will understate the actual premiums being charged to consumers, because they are dealer to dealer pricing as reported by CDN. Dealers typically have to charge more than the premiums shown in order to earn a profit.
Lest anyone thinks these high premiums are purely academic or somehow unreal, consider this comment from Bill Haynes, a 35-year coin and bullion veteran who runs CMI Gold and Silver based in Arizona. Bill checked in via email, and among other things he remarked: “Tomorrow, I will inform my clients that we have 15 bags of junk 90% silver coins for sale at $4.00/oz over spot. They will be the first bags we've have in months, and they will be gone before the end of the day.”
We can conclude that the premiums are quite real.
High premiums are temporary
Sonny Toupard, another long time coin and bullion veteran who runs Royal Coin in Houston, said in emailed comments Saturday that he has seen premiums easing since last week, “but not by much.” Importantly premiums were higher last week than they were the last week of October in the above bullion premium charts. “The last 1 oz American Gold Eagles I ordered I had to pay $66 over spot on a three week delivery! Supply is really low,” added Toupard. (In October the CDN reported the premium at $46.50 over spot dealer to dealer.)
The harsh drop in the paper futures silver market since July (spot silver fell from $19 to under $9) has affected the pricing of physical silver on the street, but over the last couple months, as the spot prices reflected a lack of speculative demand in the futures markets and superior fire power by short sellers, the physical market has quit listening or reacting to it. Most think the physical market, not the futures market, is pricing more along the lines of real supply and demand.
As mentioned in the last Got Gold Report, this divergence between the real physical markets and the paper futures markets is causing physical metal to flow away from the futures markets warehouses and into the physical market and is strongly increasing demand for silver and gold ETFs.
Eventually, however, a combination of forces will bring the very high premiums back in to more normal levels once the markets stabilize. One of those forces will be increased scrutiny which is coming to the futures industry. Whether they like it or not, they have asked for it.
The abusive actions taken by a small number of very large and well funded banks have now destroyed a good many companies, shuttered a large number of mines and guaranteed that there will be widespread shortages of physical metal as we go forward. Hopefully, that will put the spotlight on the very unfair and one-sided rules the futures markets currently employ and allow for more equal footing for all investors in the months and years to come. We’ll undoubtedly have more about that in future reports.
Very high, black market style premiums are unsustainable for long periods of time. Sooner or later speculative demand will return to the futures markets, and probably will sooner rather than later. Right now people are still very worried and uncertain about the very near term future, but we already know that shortages are coming. They are here already in the physical markets. If we know, so do those who trade metals futures. They’ll be back, but in the mean time there are other indications that the futures and OTC markets need to consider right now.
Some companies get it right
For example, some companies have begun bypassing the futures markets by directly producing and selling bullion items to the public. In a November 14 press release, First Majestic Silver Corp. [FR.TO] said:
“The Company is continuing to analyze various options to reduce its operating costs and to squeeze out the most optimum margins possible. One example which is proving to add substantial value is management decided to mint 99.9% pure silver into coins, ingots and bars which are actively marketed on the Company's web site. Interest levels for these products are extremely high and are beginning to represent substantial revenues for the Company. These products tend to sell at substantial premiums to COMEX spot prices. It is anticipated that these sales of refined silver products will represent approximately 10% of the Company's silver production by February 2009. The Company is also exploring other ways of selling its silver outside of the normal avenues of commercial sales.”
Bully for First Majstic. It’s about time we see a company take the bull by the horns to step outside the corrupt, and manipulated established market that has so mispriced a vital commodity. With such a huge disparity between the futures-dominated spot price and the real physical silver markets, it is no wonder that physical silver is flying out the COMEX doors and into the physical market.
That’s something we need to see more of. Companies refusing to accept overly low pricing by paper traders. We need to see more of the Big Dogs in the metals biz holding back production, buying metal off the miscreant futures markets to deliver into December commitments in large quantities and removing metal from those who don’t respect it in favor of the popular physical markets where people do respect it.
One more time, if the hedger and short seller dominated futures markets are so intent on driving prices for metals to absurdly low levels then they shouldn’t mind seeing the metal in their warehouses heading out the door to the physical markets that actually want it.
Got gold report charts
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1-year daily gold
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2-year weekly gold
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1-year daily silver
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2-year weekly silver
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3-year weekly HUI
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2-year weekly Gold:HUI ratio
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2-year weekly U.S. dollar index
That’s it for this special Got Gold Report. Until next time, as always MIND YOUR STOPS.
The above contains opinion and commentary of the author. Each person should study the issues carefully and, as always, make their own informed decisions. Disclosure: The author currently holds a long position in iShares Silver Trust, net long SPDR Gold Shares and holds various long positions in mining and exploration companies.
I can only just wish I had the answers to those questions. I do believe that when all is said and done, the holders of gold and silver will be in a much better position economically than the rest. It looks ugly now, but this mess that took years to build is only just starting to unravel. And it won't be finished any time soon.
.........al
you beat me to that one. here's the link
........al
http://www.boston.com/news/local/articles/2008/11/16/sox_fans_forever/
As you read this just think about what you would do with your billions of US dollars in reserves if you were a Chinese, Japanese or other foreign central banker.
.......al
http://www.moneyandmarkets.com/the-g-20s-secret-debt-solution-27996
The G-20’s Secret Debt Solution
by Larry Edelson 11-13-08
Larry Edelson
If you think this weekend’s G-20 meetings in Washington are only about designing short-term fixes to the financial system and regulatory reforms for banks, hedge funds, brokers, mortgage companies and investment banks … think again.
Behind the scenes, a far more fundamental fix is being discussed — the possible revaluation of gold and the birth of an entirely new monetary system.
I’ve been studying this issue in great depth, all my life. And given the speed at which the financial crisis is unfolding, I would be very surprised if what I’m about to tell you now is not on the G-20 table this weekend.
Furthermore, I believe the end result will make my $2,270 price target for gold look conservative, to say the least. You’ll see why in a minute.
First, the G-20’s motive for a new monetary system: It’s driven by and based upon this very simple proposition …
“If we can’t print money fast enough to fend off another deflationary Great Depression, then let’s change the value of the money.”
I call it …
The G-20 may propose devaluing all currencies, including the U.S. dollar and the euro.
The G-20 may propose devaluing all currencies, including the U.S. dollar and the euro.
“The G-20’s Secret Debt Solution”
It would be a strategy designed to ease the burden of ALL debts — by simultaneously devaluing ALL currencies … and re-inflating ALL asset prices.
That’s what central banks and governments around the world are going to start talking about this weekend — a new financial order that includes new monetary units that helps to wipe clean the world’s debt ledgers.
It won’t be an easy deal to broker, since the U.S. is the world’s largest debtor. But remember: Debts are now going bad all over the world. So everyone would benefit.
Fed Chairman Ben Bernanke … Treasury Secretary Paulson … President Bush … President-elect Obama … former Fed Chairman Paul Volcker … Warren Buffett … and central bankers and politicians all over the world agree a new monetary system is needed.
The G-20 may propose devaluing all currencies, including the U.S. dollar and the euro.
So they’ll start hashing out the details to get the new financial architecture deployed as quickly as possible.
If you think I’m crazy or propagating some kind of conspiracy theory, then consider the historical precedent …
To end the Great Depression in 1933 Franklin Roosevelt devalued the dollar via Executive Order #6102, confiscating gold and raising its price 69.3%, effectively kick starting asset reflation.
Only this time, it won’t be just the U.S. that devalues its currency. The world is too interconnected. Instead, the world’s leading countries will propose a simultaneous and universal currency devaluation.
This time, they will NOT confiscate gold. There would be riots all over the globe if they even mentioned the “C” word.
But they don’t have to confiscate gold. Here’s one scenario …
They cease all gold sales and instead, raise the current official central bank price of gold from its booked value of $42.22 an ounce — to a price that monetizes a large enough portion of the world’s outstanding debts.
That way, just like in 1933, the debts become a fraction of re-inflated asset prices (led higher by the gold price).
And this time, instead of staying with the dollar as a reserve currency, the G-20 issues three new monetary units of exchange, each with equal reserve status.
The three currencies will essentially be a new dollar, new euro, and a new pan-Asian currency. (The Chinese yuan may survive as a fourth currency, but it will be linked to a basket of the three new currencies.)
The new fiat monetary units would be worth less than the old ones. For instance, it could take 10 new units of money to buy 1 old dollar or euro.
New names would be given to the new currencies to help rid the world of the ghost of a system that failed. Additional regulations and programs would be designed and implemented to ease the transition to a new monetary system.
The IMF would be at the center of the new monetary system.
The IMF would be at the center of the new monetary system.
The International Monetary Fund (IMF) would implement the new financial system in conjunction with central banks and governments around the world.
Keep in mind that the IMF is already set up to handle the transition, and has had contingency plans allowing for it since the institution was formed in 1944.
Included in the design and transition to a new monetary system …
A. A new fixed-rate currency regime. Immediately upon upping the price of gold and introducing the new currencies, a new fixed exchange rate system would be re-introduced. The floating exchange rate system would be tossed into the dust bin along with the old currencies.
This would kill any speculation about further devaluations in the currency markets, and drastically reduce market volatility.
B. To sell the program to savers and protect them from the currency devaluation, compensatory measures would be enacted. For instance, a one-time windfall tax-free deposit could be issued by governments directly to citizens’ accounts, or, to employer-sponsored pensions, to IRAs, or Social Security accounts.
Income taxes may subsequently be raised to pay for the give-away, or a nominal global type of sales tax could be enacted to help pay for the new system and the compensatory measures.
C. Additional programs would be designed to protect lenders and creditors. Lenders stand a much higher chance of getting paid off under the new monetary system — but with a currency whose purchasing power would now be a fraction of what it was when the loans were originated.
So programs would have to be designed to help lenders offset the inflationary costs of their devalued loans, probably via the tax code.
Naturally, all this is a bit more complicated than I’ve spelled out above. But that gives you a big-picture outline of what the plan could look like. And I think major changes like these are going to be set in motion at this weekend’s G-20 meetings in Washington.
Would they work?
Yes. They would help avoid a repeat of the deflationary Great Depression. But don’t expect even a new monetary system to put the U.S. or the global economy back on track toward the high rates of real growth that we’ve seen over the last several years. That’s simply not going to happen. Not for a while.
Instead, I’m talking about a massive asset price reflation, negative real economic growth in the U.S. and Europe — but continued real GDP gains in Asia.
The Big Question: What gold price would be legislated to reflate the U.S. and global economy?
I can’t tell you what gold price the G-20 would ultimately agree to. But here’s what they will be looking at …
* To monetize 100% of the outstanding public and private sector debt in the U.S., the official government price of gold would have to be raised to about $53,000 per ounce.
* To monetize 50%, the price of gold would have to be raised to around $26,500 an ounce.
* To monetize 20% would require a gold price a hair over $10,600 an ounce.
* To monetize just 10%, gold would have to be priced just over $5,300 an ounce.
Those figures are just based on the U.S. debt structure and do not factor in global debts gone bad. But since the U.S. is the world’s largest debtor and the epicenter of the crisis, the G-20 will likely base their final decision mostly on the U.S. debt structure.
So how much debt do I think would be monetized via an executive order that raises the official price of gold? What kind of currency devaluation would I expect as a result?
I would not be surprised to see the G-20 monetize at least 20% of the U.S. debt markets. THAT MEANS …
* Gold would be priced at over $10,000 an ounce.
* Currencies would be devalued by a factor of at least 12 to 1, meaning it would take 12 new dollars or euros to equal 1 old dollar or euro.
The return of the Gold Standard?
“But Larry,” you ask, “how could this be accomplished when we no longer have a gold standard? Further, are you advocating a gold standard?”
If the G-20 monetizes at least 20% of the U.S. debt markets, gold could easily hit $10,000 an ounce.
If the G-20 monetizes at least 20% of the U.S. debt markets, gold could easily hit $10,000 an ounce.
My answers:
First, you don’t need a gold standard to accomplish a devaluation of currencies and revaluation of the monetary system.
By offering to pay over $10,000 an ounce for gold, central banks can effectively accomplish the same end goal — monetizing and reducing the burden of debts, via inflating asset prices in fiat money terms.
Naturally, hoards of gold investors will cash in their gold. The central banks will pile it up. At the same time, other hoards of investors will not sell their gold, even at $10,000 an ounce. But the actual movement of the gold will not matter. It is the psychological impact and the devaluation of paper currencies that matters.
Second, I do NOT advocate a fully convertible gold standard. Never have. There isn’t enough gold in the world to make currencies convertible into gold. It would end up backfiring, restricting the supply of money and credit.
What should you do to prepare for these possibilities?
It’s obvious: Make sure you own some core gold, as much as 25% of your investable funds.
Also, as I’ve noted in past Money and Markets issues, you will want to own key natural resource stocks, and even select blue-chip stocks that will participate in the reflation scheme.
For more details and specific recommendations to follow, be sure to subscribe to my Real Wealth Report.
Best wishes,
Larry
nice article and expected. When the going gets a little tough the first things to go are usually the toys. It's going to be a long haul for the technology industry for a while.
...........al
I think he is referring to all those T trades reported at 16:05 this afternoon.
.......al
http://ih.advfn.com/p.php?pid=trades&cb=1226713751&symbol=NO%5ESNRS
Unfortuantely for W he's the man in chage (supposedly) and all eyes are on him. He'll take the fall for the whole mess even though most of it was planted and nurtured when he was still trying to avoid military service. Is Obama up to the challenge? Even he is warning that it won't be easy. They all seem to want to avoid the "P" (pain) word yet we all know there'll be a lot to go around. Personally I don't like W. I believe he crossed the line between confidence and arrogance too many times. No one in Washington will be able to fix the mess this country is in. The special interests, lobbyists, and large political donors won't allow it. As long as they are all feeding at the government trough nothing will get fixed properly.
And finally, you are on the right track looking at the bankers. Like Rothschild once said years ago- I don't care who makes the laws, as long as I control the money.
........al
A big IMHO here but I blame part of the problems in the US auto industry on Richard Nixon and Henry Kissinger. It was Kissinger back in the early 70's that persuaded Nixon, against the strong objections of the oil companies, to allow the Shah of Iran to nationalize his oil industry. He needed money to buy military hardware ( from, you guessed it, the US military industrial complex) to protect his flank from the Russians. Funny how the "domino theory" that was a pillar of the Vietnam war happenned not in SE Asia, but in the oil rich shiekdoms of the middle east. Gas prices rose to 50¢ a gallon and lines at the pump became the norm. These circumstances were the setup that accentuated the flaws in the US auto industry. With the doubling of the price of gas many US workers used to doing long commutes found the costs of those commutes doubling, hurting family finances. All those toyotas and datsuns and volkwagens getting 25+ mpg started to look like good 2nd cars to help save gas and the family budget. All these little foreign imports were being used far more than the family car, usually a large ford, chevy, or chrysler. Odometers were hitting 80,000 miles and up with little more maintenance required than oil changes. While the family car was needing a lot of repairs at 40-50,000 miles. The big three back then wanted you to buy a new car every 3-4 years so they weren't made to last much longer than that. That was their downfall as the US consumer woke up to the fact that these rice burners lasted a lot longer and cost less to run. The US auto industry has been behind the curve ever since as the imports gained market share every year. So we can all look back and say thanks to that president and secretary of state for higher gas prices (the rise of OPEC), the eventual demise of the US auto industry, mega profits for the US military industrial complex( big republican donors), and all those extra petro dollars supporting terrorism all over the world. See it ain't all W's fault. I'd give you a LOL on that but there isn't anything funny about it.
............al
Good sound advice, naturally. I think there is an assumption there of being virtually debt free in the first place. I have no debt myself, nor do I use margin. I am also investing every spare dollar I can afford right now, and have been for a long time. My vehicle of choice is silver. I also like Canroyals for the Canadian play as well as the monthly dividends that at some of these stock prices are well over 20% yearly returns. Not bad for today's market. I also have some speculative investments and will not put any more funds into it for now. I like the silver because if the system does break down ( I consider it a possibility) my silver coin is tradable when people will be literally burning dollars to stay warm as in Germany circa 1930's. If not the inflation we will face when all these trillions of digital dollars floating around become monetized will propel precious metals parabolically. I don't do currencies and the only foreign market I like is Canada. It's more due to ignorance and lack of knowledge and understanding than anything else. If I wanted to pklay those things I would seek a mutual fund. Cash will be king until the day everyone has more than they need and no one wants it anymore.
........al
from Monty Guild:
THINGS CHANGE FAST
A few weeks ago many thought I was out of my mind. I had the temerity to state that I thought that we were going into a depression, not a recession, and that the economic decline would last for two to three years. Now, it looks like a few others are coming around to my view. The chairman of Goldman Sachs recently said we are facing a banking crisis worse than the Great Depression. The former chairman of the New York Stock Exchange said it is comparable to the Great Depression.
More and more are willing to admit the magnitude of the problem. We continue to see a few Pollyanna types who want to see everything as sunny. For them, we have the following outlook. In our opinion, things will get sunny and big buying opportunities will periodically develop, but they will be interspersed with big declines, and a lot of hand wringing.
IT WAS PROBABLY MORE THAN SIX YEARS AGO THAT WE FIRST STARTED TO WARN IN THESE MEMOS ABOUT THE TOXIC EFFECTS OF DERIVATIVES. IT WAS ABOUT ONE AND A HALF YEARS AGO THAT DERIVATIVES CONNECTED WITH MORTGAGES BEGAN TO MELT DOWN
Unfortunately, we do not believe that this is not the end of the derivative problem. A bigger problem looms on the horizon. Derivatives are still being created everyday. Often, they are created by people who are just as greedy and self deluded, as those who created the mountain of mortgage derivatives that have brought the system to its knees. If the current unexploded mountain of derivatives were to implode, (as those derivatives connected to mortgage bonds did) the crisis could become much worse.
LET US SUMMARIZE
Derivatives and bonds connected to mortgage assets have collapsed, bringing the world banking system to its knees. Many other types of derivatives have not imploded, but may do so.
In the case of mortgage bond derivatives, they exacerbated an already serious collapsing mortgage bubble. The mortgage derivatives caused the destruction of the PACKAGERS OF MORTGAGE DERIVATIVES, also known as INVESTMENT BANKS, who drank the poisoned wine along with their clients.
In one year, the entire industry of large investment banks dissolved. They failed and/or were forced to become bank holding companies. This is the most astounding effect imaginable. It happened because the investment banks, believed the absurd valuations that they and rating agencies, had given to toxic assets (mortgage derivatives) which they held.
Eventually, some investors started to listen to analysts like Jim Sinclair, myself and others. A few investors began to grasp the absurdity of the mortgage derivative valuations, and the extent of the self delusion that investment banks and their clients were living under.
TODAY, ANOTHER EQUALLY BIG PROBLEM LOOMS ON THE HORIZON
This new problem stems from bonds (and derivatives on bonds) connected to consumer loans. Just as they did with mortgages, investment banks packaged pools of AUTO LOANS, CREDIT CARD DEBT, and STUDENT LOANS into derivatives. In our opinion, these too will eventually implode when the weak economy causes many borrowers to default on their loans. It is no mystery why Secretary Paulson yesterday announced, that he wanted to help consumer finance companies. The obvious reason is that bad debts on auto loans, credit cards, etc., are the next bond and derivative bomb waiting to explode.
DERIVATIVES THAT DO NOT HAVE TO EXPLODE
A third type of derivative is based on commodities and stocks, and speculation in commodities and stocks. These are known as options and futures on stocks and commodities. In many cases they are transparent and the underlying assets are liquid.
RATING AGENCIES
The rating agencies are another immense scandal. They operate in a field filled with conflicts of interest. We predict that they will be dismantled, sued, and may be hounded out of existence.
LOOKING BACK AT THE PERIOD FROM 1929-1942
The U.S. stock market peaked in October 1929 at about 381 on the Dow Jones Industrial Average. It bottomed 2 years and 9 months later in July 1932, at about 41...a decline of almost 90%.
Then a rally began. Over the next four years, the Dow went up over 300%. In our opinion, we should be looking for a big long term bottom sometime in the next year. From that bottom, we believe that the market could rally for prolonged period and rise substantially.
WHAT WE SUGGEST
In our opinion, during the correction phases, and when the market gets cheap over the next year or more, investors should search for value globally, and buy: growth stocks in several countries, gold shares, undervalued currencies, and commodities.
Thanks for listenin
Governments Reflate and Gold Will Rise!
By: Julian D. W. Phillips, Gold/Silver Forecaster - Global Watch
A long and deep recession, possibly a depression is being forecast across a broad front. But the real picture is different. Governments and central banks are not only committed to doing all in their power to resurrect growth and give their different economies ‘traction’ but have begun the vigorous implementation of reflation. They will do “whatever it takes” to get growth and confidence re-established globally. In essence, the crisis appeared quickly and devastatingly out of greedy lending by banks loaning to uncreditworthy individuals on a broad front. It has to be rectified just as quickly because banks control the lifeblood of liquidity in the economy and they will place their financial health well before that of the broad economy and their customers. They have been saved by central banks to date, but it is resumption of growth and confidence, not healthy banks, that must be achieved first. In the major economic blocs of the world actions are underway, to differing degrees, to force the banks to lend or be bypassed, so that the damage they can inflict on growth, through congealed debt and their instruments, is neutralized. The banks have made it opaquely clear, that they will not lend in such a way as to rectify the underlying crises of a dropping housing market and its ‘ripple’ effects on consumer spending. Governments do see banks as an obstacle to the resuscitation of growth and confidence, so their powerful influence over the state of the economy has to be reduced considerably before this can be done. And it has to be done before any semblance of recovery can be achieved again. The longer the process takes the more difficult and lengthy the solution will be.
Just take a look at the world’s three main economic bloc’s efforts at stimulating growth again:-
q China said it would spend an estimated $586 billion over the next two years, roughly 7% of its gross domestic product each year, to construct new railways, subways and airports and to rebuild communities devastated by the May 2008 earthquake in the southwest. Their reasoning is as follows, “Over the past two months, the global financial crisis has been intensifying daily,” the State Council said. “In expanding investment, we must be fast and heavy-handed.” But in China, much of the capital for infrastructure improvements comes not from central and local governments, but from state banks and state-owned companies that are told to expand more rapidly. China maintains far more control over investment trends than the U.S. does, so they can unleash investments to counter a sharp downturn. The Chinese government said the stimulus would cover 10 areas, including low-income housing, electricity, water, rural infrastructure and projects aimed at environmental protection and technological innovation, all of which could incite consumer spending and bolster the economy. The State Council said the new spending would begin immediately, with $18 billion scheduled for the last quarter of this year. In addition, China has already announced a drastic increase of the minimum purchasing price for wheat from next year, by as much as 15.3%. There is also going to be a substantial increase of the purchasing prices for rice, said the National Development and Reform Commission. In the meantime, they also announced plans to stabilize prices for fertilizers and other agricultural means of production, to ensure that the grain price increase will not be eaten away by input making the price increases real income gains for farmers. This will shore up domestic demand and head off any social unrest in the rapidly growing economy. The government there sees its task to harness all sides of the economy to produce growth while they pull their 1.4 billion people out of poverty. Their recent history confirms their ability to succeed!
q In Europe, with a more Socialist environment than the U.S.A., [meaning greater central government control over the economy], we believe that after bailing out so many European banks, a very heavy pressure will be put on banks to vigorously lend down to street level again. President Sarkozy’s threat to seize banks that don’t lend gives meat to this forecast. In Britain, nationalization lies ahead of suffering banks and the end of senior executive careers, if they don’t lend freely. Despite the lack of the same effective management [ignoring politics and commerce and other capitalist principles] of the economy in Europe as in China, governments will act in the same way as the Chinese are, eventually, to make growth and confidence happen again. They are committed to this, at last. So 2009 will be the year of reflation in the face of deflation.
q In the U.S.A., such synthesis of national institutions in fighting deflation is unlikely as the cooperation of banking, commerce, etc to focus on the underlying economic crisis would barge into so many valued principles fought for, over time. However, we have no doubt that the intransigence of such principles in the face of a decaying economy will produce overwhelming pressures on the system to revitalize the consumer and restore his spending. The government has now seen the banks follow the “profit and prudence” principles after their bailouts and their holding back on lending to safeguard themselves, first. Secretary Paulson has now faced off with them and redirected efforts to make government provided financial relief go direct to the consumer. But he is only at the beginning of this process, which must be across the entire spectrum of consumers, not simply a portion of clients of the largest mortgage providers, Fannie Mae and Freddie Mac. Indeed, the slow nature of this solution as it wends its way through political and financial obstacles, could produce a near revolutionary climate, until sufficient action is taken to re-finance the economy from consumer upwards. After all, day-by-day, solid U.S. citizens are being impoverished by the financial sector problems, not their own. As slow as the pace of support becomes, the more degenerative impact it will have on uncertainty and confidence. We have no doubt that 2009 will be remembered as the year of reflation in the face of deflation. Already, house-owning households are likely to receive direct financial aid, if their mortgages are more than 38% of income. If this is applied to all U.S. households in this position we fully expect to see hope lead to confidence, then spending, then growth. These and the suggested support of the consumer on car finance and credit cards will re-kindle spending and the economy. Such moves must convince the U.S. consumer and stop him thinking like a victim. [In the Depression of the early thirties the U.S. used, as part of its battery of tactics, paying people to dig holes and fill them in again, just to get money flowing from ground level up]. This can be implemented in the next few months and impact on the broad economy by the end of the first half of 2009, if applied properly, as government implies it wants to. If it is, then the first 100 days of President Obama will indeed be a honeymoon.
The importance of growth
Mr. Ben Bernanke and the governments of the U.S., the Eurozone and China have recognized in no uncertain way that confidence must be regained before growth gains traction and becomes self-sustaining. It appears that they have got the message now and will do whatever it takes to ensure the credit crisis is replaced by confidence in credit. That the banks should suffer for their indiscreet past behavior is just, for a lender should carry the same risk as a borrower.
Inflation and gold and silver prices
q Reflation is vigorously being implemented across the globe, but inevitably it will come with inflation. It is impossible to say just how much money needs to be printed to counter deflation, but for sure it will be more than needed and will keep flowing until the financial sun is shining again. 2009 will probably not see inflation rise to dangerous levels, because of its absorption by deflation. But as the money fills deflationary holes, it will spread far and wide and eat into the value of debt, so bringing relief to troubled debtors in addition to direct governmental support. This will be found to be politically acceptable and will delay, if not remove, the pernicious impact of bad debt that we are seeing now. Growth and confidence are considerably more important problems than inflation. Banks have been given debt relief already and so will the consumer, because that is the only solution to the credit crunch. It will be accompanied by the cheapening of money, leading to far higher gold and silver prices than we are even contemplating now. As this is slowly realized by an ever-widening audience across the globe, gold will re-enter the mainstream of investments as an anchor to monetary values if only at individual levels. Thereafter institutions and perhaps central banks, will appreciate it fully?
q Governments have to act very fast to stop the confidence-eating impact of deflation from becoming a way of life, just as borrowing was, over the last thirty years. Consequently expect global stimulation to be put in place before the end of the first quarter of 2009. In that time we fully expect forced selling of all assets to slow to a trickle. Thereafter a positive tone will benefit gold and silver in the long-term, as well as short-term.
Let’s be clear though, there is no historic precedent to what we are about to see.
We expect gold to thrive in an atmosphere of hope, against a threatening backdrop, with the gold price realistically discounting the diminishing buying power of paper currencies.
It's not so much the labor costs as the start up costs in equipment and materials. Then the time factor comes in to play. Even with gov't support the whole way, new mines take years to come on line.
........al
Probably because if you can get it at or near spot on the open market, it's cheaper to buy it than mine it. It normally takes 5-7 years to start production on a new mine. Besides, with all those dollars in their bank that just about everyone knows are going to lose purchasing power diversification out of dollars into something that won't be losing value makes a lot of sense whether you are a capitalist or a communist. I know I am trading in as many of my dollars as I can afford for silver. And I don't think I'm alone.
.........al
Impending recession/depression good for gold:
http://news.goldseek.com/InternationalForecaster/1226560020.php
The following are some snippets from the most recent issue of the International Forecaster. For the full 28 page issue, please see subscription information below.
US MAKRETS
Recently the fane-stream media was asking how our free enterprise system of capitalism could have failed us so utterly. How, they asked, could we have gotten into this disaster if bad investments were properly weeded out in a timely manner by the markets, and were not allowed to accumulate to such devastating levels of toxicity, as they should have been in such a system? These people are either morons, or liars, or both. This is not the failure of a free enterprise system of capitalism because our economy is no longer based on a free enterprise system of capitalism, and has not been for at least two decades. Any pretense of a free enterprise system of capitalism ended when, in the aftermath of the Stock Market Crash of 1987, which crash was orchestrated by the Illuminati during Paul Volcker's term at the helm of the Fed to provide the excuse needed, President Reagan signed an Executive Order forming the President's Working Group on Financial Markets, also known as the Plunge Protection Team, or PPT, which has, ever since, totally and completely dominated and manipulated virtually all markets worldwide on a 24/7 basis. The PPT's authority and mandate are illegally abused on a daily basis. This group of Illuminist players, which include Caligula, as President, Hanky Panky as Treasury Secretary, Buck-Busting Ben as Fed Chairman, and firms like Goldman Sachs as financial henchmen, are supposed to step in during a crisis. They are not supposed to be sticking their nose into everyone's business on a daily basis worldwide. We have become the envy of Russia and China, because Illuminist control over our markets exceeds their control over their command economies by an order of magnitude. We have perfected the corporatist, fascist business model via the Illuminati, who form our shadow government of puppet-masters. Russia and China are still amateurs. Everything that Russia and China have learned they have learned from us. That is because we helped to create them and make them what they are today. They are the best enemies that money can buy. After all, the Illuminati need various and numerous scapegoats on whom they can pin the blame for all the fallout caused by their malevolent, despicable and nefarious operations. They need victims to sacrifice on the alter of world government.
By using the Fed's repo pool to provide tens of billions of dollars to fund their operations whenever needed, the PPT once destroyed the ruble and the Russian economy, and has parked over two trillion dollars worth of latent US inflation, in the Chinese and Japanese economies alone, via treasury and agency debt purchased by these nations with their surplus trade dollars that they have gained through illegal currency manipulations that have been allowed, and even encouraged, until recently, by the PPT. The PPT has allowed them to artificially devalue their currencies to achieve unfair trade advantages so the Fed can hide the inflation it has caused through profligate growth of the money supply from the US sheople. The Chinese, Japanese and EU trade surpluses have also been created and fostered by the free trade, globalism, off-shoring, outsourcing, and both legal and illegal immigration agendas which have brought our auto industries to their knees and have sent our manufacturing industry and our good-paying jobs overseas. And soon that PPT-fostered dam of US debt is going to break along with all the other treasuries and agencies dammed up worldwide, thus totally Weimarizing us and destroying the dollar and its reserve status. Such an event is what will pave the way for a regional, and later a world, currency. That, in turn, is how the evil and despicable Illuminati will bring us into world government. They will control the world's supply of money, and thus they will be able to do as they please when it comes to political control, ala Rothschild: "Permit me to issue and control the money of a nation, and I care not who makes its laws." That line of reasoning can be extended from control of a nation's money supply, to control of the world's money supply, and thus leaders worldwide can be made into Illuminist puppets as has been done to most of the leaders of Western Civilization already.
A free enterprise system of capitalism also requires an underlying system of laws by which the game may be played fairly by all parties, and a legal system by which differences may be fairly adjudicated. Without a system of rules and proper enforcement devices, the fallen natures of men will take over and any sense of freedom and fairness in markets is thus lost. Our laws and judicial system have been completely and totally perverted because our politicians and judges, with few exceptions, are all bought-and-paid for or are compromised by the skeletons in their closets, which are usually large and numerous. The US Constitution is thus ignored, and is treated as if it were nothing but worthless piece of paper, like our fiat Federal Reserve notes. A cadre of malevolent elitists make all the rules, and then break them at will, holding only non-elitists accountable because they control the system of laws, and the system for enforcing those laws. That is not a basis upon which any free enterprise system of capitalism can be based. That is type of system that underlies crony capitalism and a corporatist, fascist police state, which is what we now have. So don't blame our current debacles on what started out as our free enterprise system of capitalism. That dream is long since gone, discarded on the scrap heap of history.
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Benchmark borrowing costs have been coming down worldwide and as in Japan the world will be flooded with interest free money. Zero interest rates are on the horizon, which means we could be in for a protracted recession/depression, as Japan has experienced since 1992. What all these countries know is that Japan never was able to recover and stayed in depression for years. Had it not been for an undervalued currency and export markets left wide open to them in the US and then China, they would have collapsed long ago. Now that everyone is in the same recessionary boat those opportunities are only open to them in a limited way. Now every country in the world faces the same problem and the same results.
The world public is cutting back on spending and are now paying off debt and saving irrespective of the return on capital. The mindset has changed and could remain that way for years. It is called a race to zero rates.
Toward that end England just cut rates 1.5% to 3%, the biggest cut in 16 years and the ECB cut rates ½% to 3.25%. Reductions also took place in Denmark, the Czech republic and Switzerland. The Bank of Japan cut to 0.3%. It is its first cut in seven years to 0.2%. South Korea cut for the third time in a month. We see contraction in the world economy, probably to an overall growth rate of 2% in 2009. In the US, Western Europe and Japan we are looking for negative growth of 3% to 5%. Experts are predicting 3% inflation in Europe and the US. They obviously overlooked the massive amount of money and credit being created by central banks along with zero interest rates. The world economy hasn’t had negative growth since 1945, so you can see the world is in for a real wakeup call. It will be interesting to see if banks lend when rates approach zero. If they don’t you can expect mass nationalization. The current problem is that market rates are above where central banks have their rates and that isn’t going to change anytime soon. Eventually governments will have to guarantee all loans.
Credit standards for loans to companies and individuals have been tightening for 16 months and it is getting even tighter.
Millions of workers are losing their jobs worldwide as economies retrench. Joblessness is the highest in 14 years in the US.
As rates fall lenders are not passing on the savings to borrowers when they do lend.
Central banks are betting that negative real interest rates will induce people to spend rather than save money that is declining in value. What they are now facing is a full-blown recession. The mindset has changed. People are frightened and rightly so.
Thus, banks will loosen up and lend and some companies and people will borrow. That will delay the inevitable for 2 or 3 years. Then when all the cards are played we’ll enter depression.
Officially the economy lost 651,000 jobs in three months, unofficially the figure was more than double that. That is because our government lies about its statistics and counts part-time workers. These figures were accompanied by equally dreadful auto and retail sales. These kinds of figures should have shown up eight years ago, but they were delayed by the real estate bubble and the massive creation of money and credit. Now, in spite of a massive infusion of money and credit by central banks to banks, financial firms and some elitist transnational corporations, household, corporate and municipal borrowers have been frozen out, as have the leveraged speculation community. The Wild West atmosphere of Wall Street is over, but the massive damage it created will linger on for years. The criminally rated mortgage securitizations are finally dead forever.
First the Fed tried selective bailouts. Then they tried throwing money at banking, Wall Street and even general corporations. Thus far neither have worked, but they have kept deflation at bay. You have seen the hundreds of billions of dollars poured into our economy and foreign economies, but speculators and risk takers are still having to liquidate holdings and de-leverage, because lenders are cutting back loans, or just won’t lend. These actions by lenders has caused a $10 trillion collapse.
The bottom line is yes banks are doing very little lending, but the entire lending apparatus is not moving funds from one place to the other. This is called disintermediation. The market segments are close to frozen and there is no end in sight. In addition, there has been a loss of confidence in the derivatives market.
We believe the banks will lend within the next three to six months. We’ll then have a recovery in the economy, which will be short lived. That will bring temporary relief, monetize funds, increase inflation substantially and that will send gold and silver substantially higher.
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