Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
http://news.goldseek.com/GoldSeek/1228499200.php
Here's Feteke's piece on gold backwardization from December 2008, predicting the meltdown of the currency system as a result of gold backwardization. It all sounds great in theory, but nothing ever happened, which is the case with 99 percent of end of the world doom and gloom and conspiracy predictions.
Opposition to climate change is what I view as knee jerk conservative reaction to what is perceived as a liberal conspiracy to change the way we use energy. I've done a lot of reading on the issue. The vast majority of the climate scientists accept climate change as pretty much a done deal. When human beings burn thousands of years of accumulated carbon beneath the earth and transfer that carbon into the atmosphere, you really have to reach far to say that all that carbon isn't going to have a dramatic effect on the climate. When you mention a volcanic erruption having more effect, you're probably right... if it's big enough volcano. If a super volcano like Yellowstone blew it's lid as it last did 650,000 years ago, we'd all be toast. If human beings continue to put carbon into the atmosphere in the coming decades at the rate we are now, our grandchildren are toast I assure you of it. CO2 has increased in the atmosphere from 240 parts per million to 380 parts per million since the beginning of the industrial revolution. Historically climate scientists have shown a very close correlation between CO2 in the atmosphere and global temperatures. The last time there was this much CO2 in the atmosphere, sea levels were 90 feet higher. Everything takes time to produce effects. Human beings are destroying the planet. If you listen to too much Fox news or Rush Limbaugh you will be blinded by their ignorance. If you want to know the truth about things, go to the people who understand the issues the best, the scientists. The vast majority of scientists, and just about all the major scientific organizations in the world all agree that climate change is real. I am extremely confident of it. Al Gore has nothing whatsoever to do with the conclusions that I have come to on the issue. I accept the views of the scientists.
Conspiracy theories abound. I don't want to discourage folks from posting doom and gloom because I always enjoy reading the various theories. Using the name Permabear I have no legitimacy critiquing others for posting doom and gloom. Nevertheless I remain very skeptical about conspiracy theories and end of the world predictions, at least in the near term. I remember a couple years ago Antal Fekele, a Ph.D. economist, was warning about backwardization in the gold market and predicting a major collapse of the economy as a result. It never happened, just as most catastrophic doom and gloom never happens.
As I said before I believe there is manipulation of the silver and other markets. It is widely known that JPM has a large position and I have little doubt they are gaming the silver market to their benefit and whoever elses benefit. As a permabear I also remain extremely pessimistic about the stock market and larger economy. I continue to believe the worst is ahead of us not behind us. With all that said, I don't believe that the end of the world is coming this year either economically, environmentally or otherwise. I do think those dispursents should never have been allowed to be used by BP to hide the amount of oil coming up. But I don't feel that the eastern half of the U.S. is in danger of environmental jeopardy.
Here's what I feel are more realistic concerns.
-Climate change is the real deal. But it won't threaten our way of life for probably two or three more decades and then it will do a lot more damage than even the climate change adherents are currently predicting.
-The economy is still screwed. There is nothing Obama, China or the Europeans can do to prevent a global economic depression occurring over the course of the next decade or so. Intervention may change the nature of the hard times from deflationary to inflationary, but we are in for a long period of very hard times to come. The sooner we let the deleveraging occur, the sooner we will be beyond the mess.
-My biggest fear of catastrophe is a war breaking out in the Middle East between Israel and Iran and/or the U.S. There are many intangibles that can occur in such a war. Taking Iran down will not be the piece of cake taking Saddam Hussein down was. It will be very ugly and produce terrorism around the world, oil prices of $200 plus and an acceleration of the economic depression.
So there are some realistic things to be afraid about. Environmental collapse on the eastern U.S. and near term financial collapse are probably not the real events to be worried about.
I do agree with you that there is manipulation of the silver market, just as there is manipulation of the gold market, the oil market, as well as all commodity markets and most of all the stock market. I have little doubt the big players are using their fancy computers to make things go their way. How else could a company like Goldman Sachs make money on its trading operations almost 100 percent of the days in the past couple quarters?
With that said there are also natural fluctuations in the markets, even with all of the manipulation. I don't blame every correction that occurs in gold, silver or whatever as having some sinister causation. I believe the current correction is due more to the deflation, strength of the dollar lately and seasonal tendencies than I do some manipulation move downward by JP Morgan.
I have confidence that manipulation or no manipulation the fundamentals will overcome any manipulation on the part of any of the big players. The economic currents are just too strong. The stock market is in a longterm bear and has much more downside to go in the years to come. At the same time gold and silver should go much higher.
I agree with Elmer Phud in this debate. In the reading I've been doing lately a lot of respected gold analysts have been warning about a coming correction in PMs in the past week or so. Clive Maund was discussed earlier. I really like the trader Tom O'Brien who I provided info on previously. He's predicting gold goes to $1088 on the downside. I posted warnings more than a month ago that I was worried about a nasty stock market fall and that it would probably take PMs with it as it did in 2008. I am hedged in various ways so the hits I take on PMs are counter balanced by gains in other areas, like shorting the stock market. You can't put all your eggs in one basket. I've learned my lessons the hard way too many times.
If seasonal trends follow their historical patterns, we could see weakness in PMs into August before we see our next push higher. The seasonal tendencies have been pretty good predictors of price action in PMs.
http://www.spectrumcommodities.com/education/commodity/charts/gc.html
I'm not doctrinaire liberal. I support sealing the borders just as much as any conservative on this board. As for turning away illegals at hospital who have medical emergencies. If we're a humane country we just don't do that. But just as with tort reform, I am with conservatives on the need to seal the borders.
Now back to the issue of medical bankruptcies. It's a well known and researched fact that health care is one of the primary reasons people go bankrupt in the U.S. And it does not happen in other countries with socialized healthcare. And you can start out with a decent health insurance plan. But get a nasty chronic illness, lose your job, lose your health insurance, and join the poverty line. That's American health care as it's currently set up.
http://voices.washingtonpost.com/health-care-reform/2009/06/new_study_shows_medical_bills.html
New Study: Bankruptcy Tied To Medical Bills
By Sarah Lovenheim
Sixty-two percent of all bankruptcies filed in 2007 were linked to medical expenses, according to a nationwide study released today by the American Journal of Medicine. That's nearly 20 percentage points higher than that pool of respondents reported were connected to medical costs in 2001.
Of those who filed for bankruptcy in 2007, nearly 80 percent had health insurance. Respondents who reported having insurance indicated average expenses of just under $18,000. Respondents who filed and lacked insurance had average medical bills of nearly $27,000.
Since 2007, the number of Americans without insurance has increased and filing for bankruptcy has become more difficult due to more stringent laws, according to the report.
The authors of the study, David Himmelstein, Deborah Thorne, Elizabeth Warren and Steffie Woolhandler, say their findings "reflect the U.S. health care financing system is broken." Middle class families, they conclude, "frequently collapse under the strain of the health care system that treats physical wounds, but inflicts fiscal ones."
If you were without health insurance or had a child who you couldn't get it for you would feel differently I assure you. There is no reason that a majority of bankruptcies in the U.S. are caused by people going broke due to health care costs. We definitely need a restructuring of our system. Socialized medicine not only provides for everyone, it is also much cheaper per capita. From an economic standpoint, it's a slam dunk.
I'm with you on the tort reform issue. But liability adds a comparatively small percentage of the overall healthcare costs.
Regarding profits, here's just a sampling of the profits of the largest companies:
http://blog.healthcareforamericanow.org/2010/02/11/insurers-enjoy-record-breaking-profits-as-they-cut-27-million-people-from-their-rolls/
The healthcare plan that Obama and the democrats adopted was vanilla pudding. It basically kept the existing system intact and added additional uninsured through legitimate mandates to buy insurance and a few extra taxes and fees on Medicare and some medical product producers. I supported it because I do feel that healthcare is a right and not a fringe benefit of living in a modern society. Every other industrialized country provides their citizens with universal healthcare. What is so horrible about providing the same for citizens of the richest country in the world? If you are unemployed, middle aged and uninsured, have a pre-existing condition or have a child with a pre-existing condition, you will understand the need for universal healthcare. If you have what you need, then you may not care. But even if you've got it all, you are only one pink slip, one accident, or one chronic illness diagnosis away from medical limbo and a potential bankruptcy.
For all you socialist haters, tell me what private insurance adds to American healthcare delivery other than siphoning tens of billions of dollars of profits off the top?
<<30 years of prosperity - the longest in memory - was an outstanding feat of Reagan. obama has the same chance to repeat success and he's blowing it horribly.
We need to work together to get the country back to greatness.>>
http://zfacts.com/p/318.html
The prosperity that Reagan created was genuine but it was built on debt (see above chart). Reagan put in place policies, such as free trade and deregulation which helped the economy grow in the short run but created the conditions for the collapse we are experiencing today and for the eventual decline of the United States as the top world power. I predict that we will be experiencing just as nasty a bust as the boom that preceded it because the policies put in place by Reagan and accelerated by W. Bush have dug the U.S. into such a massive hole, we are doomed.
My argument was and is that an economic depression of one sort or another has been baked into the cake for years. My criticism of Downsideup is that, like many circling the wagons these days, he finds convenient fault in the actions of the Obama administration for the problems that are seen today. My argument is that there is no policy action that Obama can take that could have avoided the calamity we have and continue to experience. You mention Ron Paul as one of the few blameless people out there. Ron Paul's prescription for this disaster from day one was to do nothing. I actually agree with Ron Paul's prescription. But let's be honest about what would have happened if we let all the economic chips fall where they may. The world's financial system would have totally collapsed. Credit around the world would have become totally frozen. The stock market would not have stopped falling at 666 on the S&P 500. It would have kept on falling down down down, possibly to a Robert Prechter low of DOW 1000. Unemployment would have zoomed up to 1930s depression levels of 25 percent plus.
This is the extent of the problems that Obama inherited when he took office. There is no politician around that would stand by and let the economy fall of a cliff like this. Action is an expected part of the job one takes on as President. Since he was a Democrat and had advisors who believed in the remedies of FDR, Obama took more of a spending stimulus approach, but also included many conservative tax cuts as well. This, combined with Bernanke's trillions in Quantitative Easing did in fact cushion the economy back to the rebound we have been experiencing for the past year plus.
But all this stimulus only provides a temporary bump. The economy is still flat on its back even with all the stimulus. My view is that there is nothing that Obama can do to fix the problem. The only fix is to let the debt work itself out. There are two ways to accomplish this. Through deflation where the debts go insolvent and the economy experiences deflationary depression. Or inflate away the debts through high or hyper inflation. At this moment in time the public is clamoring for austerity. Austerity will lead to the deflationary outcome. But as the stock market tanks, as housing rolls over, and probably as unemployment starts to rise again, we may see a change in tone coming from the public. My view is that we will see more demands for the government to take action. Bernanke will go into his deflation fighting mode and inflate as Montanore has posited. And at some point instead of the Euro tanking, it will be the dollar that tanks. At that point all bets are off on high high gold and silver go.
I couldn't agree with EOM more. To discount all of the factors that led to the financial collapse is just unbelieveable denial. Downsideup is clearly an intelligent, well read guy who makes good arguments. But to say that everything that occurred before the Obama administration that led to the financial collapse doesn't matter now, give me a break.
Obama has undoubtedly made some strategic policy decisions that I don't personally agree with. I would get us out of the wars in Iraq in Afghanistan, the sooner the better. When it was time for stimulus I would have emphasized infrastructure and weaning the U.S. off of foreign oil completely. Putting the resources into this endeavor rather than the hodgepodge of stimulus efforts (including massive tax cuts by the way), would have produced more results in the longer term.
With that said, I have been a permabear for years. I saw the writing on the wall of this crisis, which I originate in the policies of Ronald Reagan. Reaganomics tripled the national debt and put the nation on a path of perennial fiscal irresonsibility. Reaganomics deregulated many industries and set the government on a course of favoring economic policies which exported American manufacturing and led to the credit binge we have been on for the past 30 years. As I said before I blame Clinton and his idiotic team of Summers, Geithner and Rubin for buying into the conservative deregulation, "small government" mantra, that began with the presidency of Ronald Reagan. When you say Democrats repealed Glass Steagall, you conveniently forget to mention that this was pushed by Republicans for years, with backing from the banking industry. The bill was written by Phil Gramm, the single individual with probably the most economic blood on his hands of any other person in the history of this crisis. The same Phil Gramm that was John McCain's primary economic advisor early in his campaign.
I am not so foolishly partisan to only blame Republicans for all the mess we're in. Liberal policies, with the union problems, too much social spending, etc. have all contributed to the mess we're in as well. The Community Reinvestment Act is a bogus point as it had been around since the late 70s and not caused any problems until Wall Street started peddling all their toxic mortgage securities around the world in the early to mid 2000s. In any case I reiterate the point that ecoomic depressions have followed conservative Repubican periods of power repeatedly now in history. Look up the performance of the stock market in the past century. It is 10 times better under Democratic presidential administrations than under Republican. http://www.investopedia.com/articles/financial-theory/08/political-party-democrat-republican-stock-returns.asp The idea that Republicans are better for the economy is such an unbelieveable lie when all the facts are considered.
Downsideup,
The whole socialist takeover of the U.S. is such overblown rhetoric. Obama's actions in the past year and a half have largely been in response to the financial catastrophe created by unfettered capitalism. The exact same thing happened in the 1930s following similar policies of Coolidge and Hoover. It's not just a coincidence that major economic collapses follow periods where politicians (usually Republican) are favoring the capitalists over the common man. As I've said here and elsewhere, my preference is for austerity over stimulus. But I do understand where liberal economists, like Paul Krugman are coming from, where he is predicting a third economic depression, contributed to by austerity policies.
For all those critical of Obama, the following chart says it all about where the origins of most of our current debt comes from:
http://www.businessinsider.com/chart-of-the-day-bush-policies-deficits-2010-6?utm_source=Triggermail&utm_medium=email&utm_campaign=CS_COTD_062810
Arnold Bock, David Rosenberg, Peter Schiff, Harry Schultz, Rob McEwen & Others, Predict Gold Will Surge To As High As $10,000/Ounce (GLD)
June 23rd, 2010
http://etfdailynews.com/blog/2010/06/23/arnold-bock-david-rosenberg-peter-schiff-harry-schultz-rob-mcewen-others-predict-gold-will-surge-to-as-high-as-10000ounce-gld/
Cutting taxes may contribute to economic growth, just as increasing spending does, according to Keynesian economics. But cutting taxes does not produce more revenue than would have otherwise occurred without the tax cuts. This is nothing more than a long propagated myth repeatedly told by right wing radio endlessly, although it is totally bogus. Bush Council of Economic advisors chair, Greg Mankiw, says as much:
http://www.time.com/time/magazine/article/0,9171,1692027,00.html
Jimmy Carter's biggest mistake was letting the Shah fall in Iran, assuming he could have prevented it, which I'm not sure about. Jimmy Carter is viewed as this failed president, while Ronald Reagan is viewed as this great president, especially by conservatives. The reality is that Carter was very fiscally responsible. He left office with a budget deficit of around $70 billion. Jimmy Carter was also absolutely right about energy. If we had listened to him back in the 70s and weaned ourselves off of foreign oil through efficiency and domestic resources, we wouldn't be in the jam we are today.
Following Carter's $70 billion budget deficit, within two years Ronald Reagan's supply side, trickle down economics turned the budget deficit into $200 billion. According to Keynesian theory, you can pump an economy with budget deficits and that's exactly what Ronald Reagan did and what Presidents have done ever since, excluding Clinton of course, who produced a budget surplus of $240 billion at the end of his presidency. My point is that we have been living on borrowed time for years. All those budget deficits over the course of the past 30 years have not built up into the monster of $13 trillion national debt that it now is and we are up the creek. I agree with conservatives on the need to cut spending and I prefer austerity and a deflationary depression over stimulus and an inflationary depression. I wish they (and Obama) would also agree on the need to get out of Iraq and Afghanistan. In fact would we not be a whole lot better off if W. Bush never got us into those quagmires in the first place.
As for your following question about how my investments are doing, I think my posting on this board should tell you something. Investments in gold and silver haven't done half bad in the past decade. I also happened to short the stock market in October 2007 and that trade didn't turn out half bad either. I'm also short today the stock market and we'll see how that trade pans out.
Unlike most permabears and doom and gloom types, I am a permabear because of the conservative, free market, laissez faire policies of the past 30 years. I saw the debt building up. I saw the jobs being exported overseas. I saw perennial budget deficits. I saw unnecessary involvement in foreign conflicts. I saw the foolishness of the average Joe consumer, buying cars and homes he couldn't afford and running up credit card debt. All the while everyone was singing Happy days are here again. The only thing propping up the economy this past decade and more was never ending easy money and spiraling debt levels. The chart that says it all the the classic "total credit market debt as a percentage of GDP:
http://www.ritholtz.com/blog/2009/07/the-jalopy-economy/
Correction on my last post. I obviously meant 666 S&P 500 not DOW.
"Where is Obama's turnaround?" Going from negative 6 percent GDP and losing 600,000 jobs per month to positive 3 percent GDP and gaining jobs every month isn't a turnaround???? Of course there's been a turnaround. Remember March 2009 when the DOW was spiraling down and hit 666? Remember when all the financial companies were collapsing, GM and Chrysler were on the verge of bankruptcy. Well things are very different today and it's all due to Bernanke's easy money and Bush and Obama's stimulus plans. Without all these actions we would be repeating 1932 25 percent unemployment all over again.
As for Reagan, he faced a completely different economic environment. High oil prices had led to high inflation, were all naturally coming down in he early 80s. The nation had a national debt of $900 billion. What Reagan did was a massive dose of Keynesian stimulus with a massive tax cut and huge military buildup. Sure it helped get the country out of recession. But it also set the stage for the huge debt problems we face today. I consider Reagan's policies to be great for the 1980s and terrible for America's future. And the future is today. We are now paying for the irresponsible policies of Ronald Reagan.
With that said, do I agree with Obama's stimulus? No. I would have let the economy collapse. Have the government provide basic support to the people. For stimulus I would have chosen possibly much more infrastructure and totally weaning the country off of foreign oil. The U.S. can do it. A combination of nuclear energy, natural gas, wind and most under appreciated concentrated solar thermal power in the desert southwest, and the U.S. could totally wean ourselves off of foreign oil and stop sending the jerks of the world hundreds of billions of our wealth every year.
As for health care, I supported the health care bill because it was better than nothing. My preference would have been a single payer plan in the mold of Canada or northern Europe. Those heatlh care systems cover everyone and cost about half of what the U.S. spends on healthcare per capita. There is so much waste in the U.S. healthcare systems. All the health insurance companies are nothing more than waste. They add nothing of value to healthcare delivery other than siphoning off profits.
Responding to many different posts at once.
I am somewhat unusual on these gold and doom and gloom message boards coming from a more mainstream Democrat, semi liberal perspective. First off, I agree with SOUTHPEN that our current predicament has absolutely nothing to do with any action that Obama has taken as president. The problems in the U.S. and world economy pre-date Obama by decades. Obama just followed W. Bush's lead in using government stimulus to try to turn around a financial crisis. Remember when Obama took office GDP was negative 6 percent per quarter, jobs were being lost at 600,000 plus per month. Fast forward to today and both GDP and job creation are positive. These are the result of Keynesian policies that Obama and the Democrats instigated. When Republicans say that Obama's stimulus policies haven't worked, they are totally lying because without that stimulus we would be in a 1930s style deflationary depression today with 20 percent plus unemployment.
That is not to say that Obama, or Bush before him, took the right economic policy. Even though I am more liberal, I kind of agree with the libertarian viewpoints of people like Ron Paul and Peter Schiff. They have argued for little government intervention. Let the market work it's magic. While they won't say it, perhaps an economic depression is just what the doctor ordered. It will be horribly painful. But it will be over in perhaps a decade. By contrast what we are going through now may last much longer and we may end up worse for it in the end if we get a Weimar style hyperinflation from it. Or in perhaps a best case scenario, an endless Japanese style malaise, with an endgame yet to be played out.
Turning to the subject of socialism, which was discussed on these boards. Being the liberal here, I have to defend democratic socialism as its practiced in the Scandinavian countries and in Canada, as examples. Those countries are all doing pretty darn well economically, thank you very much. And they are much more socialist that anything Obama would ever dream up. So don't tell me that socialism can't work. It can when practiced wisely.
Speaking of central government control and mercantilism which Downsideup discussed. Many, including myself, feel that China has the upper hand in being the economic hegemon of the 21st century. China has more central control over their economy than just about any western economy. Can such central control be called "socialism"? What its more often referred to these days is "authoritarian capitalism". China has been manipulating their currency and managing their trade with the west as a means of increasing their wealth. The U.S. and west overall have played into China's hands by letting our manufacturing capacity be transferred over to cheaper labor in China, which has produced massive trade deficits for the U.S. Combined with perennial oil importing, this has contributed to a massive transfer of wealth to China and oil producing nations. "Free trade" practiced by presidential administrations of both Democrat and Republican, have played this game, allowing China and oil producers to allow the U.S. to export our wealth and economic power overseas. I believe that everything China does is planned out. By contrast the U.S. lives for today. As long as we had cheap oil and cheap consumer products to buy and a spiraling amount of credit to fund it with, the game was fine for policians in the U.S. who have lived only for today. Now we are paying the price for decades of short sited policies.
I pin a lot of the problems we see today on deregulation, free trade, and irresponsible budgets, and most of these problems originated in the presidency of Ronald Reagan. I am a big fan of Bill Clinton, who was the most fiscally responsible president in decades and produced a budget surplus, but he made massive blunders signing Phil Gramm's repeal of Glass Steagall and deregulation of the derivatives market. I believe these actions were much more harmful than anything Bill Clinton did with Monica. On a broader scale, I do agree that entitlements are way out of control and need to be reined in, but still the current mess we find ourselves in is mostly what I refer to as the three Ds, debt, deregulation and derivatives. All of these policies began and the table were set for in the conservative, supply side, trickle down economics of Ronald Reagan, which Bill Clinton followed, with his "the era of big government is over".
But regardless of the politics, we are in a mess that no one I believe has a good solution to. We can go the route of the austerity believers (which I admittedly prefer). What we end up with is a deflationary depression. Or we can try to stimulate bit by bit and end up like Japan with no endgame. Or we can really stimulate like crazy and monetize the debt, which I predict Bernanke will end up doing, and end up with hyperinflation. Bad choices all. We are screwed any way you look at it. And that's why you have to own precious metals.
There are so many different factors and scenarios to consider when trying to figure out where the value of gold and silver are going. I believe in PMs because of their monetary value over the history of human civilization. The fact that central banks and investors around the world continue to turn to PMs in these times of uncertainty reinforce the idea that gold at least is not the "barbarous relics" critics claim it to be.
Those of us who believe that debt is an increasing problem for both the U.S. and much of the western democratic world believe that our current fiat currency system is vulnerable to debasement. Debt levels are an enormous problem going forward. Countries have the horrible choice right now of trying to cut debt using austerity methods, which will produce a lot of insolvency and deflation. Or they can try to continue to stimulate and reflate the economy and risk an inflationary outcome. Right now the world, especially Europe, is choosing austerity. The debate remains unresolved in the U.S.
Personally I come into the current situation believing there is no easy way out. I don't buy the argument of the perennial optimists that we can grow our way out of our debt mess. Looking back in history, I see one of three scenarios, a 1930s style deflationary depression, a Weimar, Zimbabwe style hyperinflation, or a Japan style multi decade malaise. The current U.S. situation differs from the precedents of all three of these situations and we don't know how policy makers are going to respond, so it is very difficult see accurately predict the endgame although we all have our biases and guesses. Mine is austerity, creating a double dip and deflationary scare, followed by dramatic policy actions demanded by the public which in the end produce inflation.
With all of that said, I choose PMs as an investment of choice because I do think that it has held value throughout world history in times of economic distress. In both economic depressions and severe inflations, gold has performed well. Some, like Jim Rogers, expand investment advice to all commodity classes. Many see oil as the ultimate store of value bacause of its obvious utilitarian uses. I don't share the view that all commodities are useful because in a severe economic contraction, many commodities can collapse due to poor demand. Gold, and to a lesser extent silver, on the other hand, will continue to have its monetary value. Thus I see PMs as the better choice to protect oneself from what I am convinced will be hard times to come.
Most gold projections I've read range from $2000 to $10000. $2000 gold would mean more instability in the world economic situation, a decline but not a disaster in the dollar, and a flight to safety in PMs. Many folks are predicting much worse economic times. For gold to go to $1500 and silver to $1500 (which I think is more of a reach), we'd have to see a real collapse in the dollar and the emergence if not outright development of hyperinflation. I call myself Permabear because I see some real hard times coming. It is really hard to say how bad things will get and thus making projections on a gold top is a total guess. The one thing I will say is I don't know how we get out of our current economic predicament (namely overwhelming debt) without either a deflationary depression or a hyperinflationary depression.
http://www.grandich.com/wp-content/uploads/2010/06/gold_vs_sp500_Since_1971.jpg
Interesting chart of the performance of gold and the S&P 500 since gold was allowed to float, courtesy of Peter Grandich's blog.
http://www.grandich.com/
For those who don't follow Peter Grandich, he has a very useful free email blog, and he has been a pretty accurate forecaster of gold prices over the years. I'm not a big fan of his religious and political diatribes, but on gold, he's great.
Not a good day for PMs. I have sided with the inflation camp in the inflation/deflation debate generally. But I don't see how anyone can deny the strong deflationary forces that exist right now. Housing, the stock market, weak consumer, strong dollar, economic weakness in Europe and around the world, M3 money supply tanking. The deflationary forces are winning right now. The argument in favor of inflation is how governments and the central banks react to the deflationary forces. At this moment in time the political winds favor austerity, both in Europe and increasingly in the U.S., as much as Obama, Geithner and Paul Krugman, throw a fit about it. Austerity will only accentuate the deflationary trends. My prediction is that austerity and the weak economy in both Europe and the U.S. will lead to the dreaded double dip. Then the public will clamor for the government to do something about it. And the government and central banks will cave to public pressure. They will start restimulating once again. The printing presses will go into all out battle stations, and the inflation genie will come back out of the bottle.
In terms of gold and silver prices right now, as I've said I'm nervous, not only because of the one guru, Tom O'brien, I wrote about. But also because we are in the worst seasonal period of the year for PMs. June through August is often the worst time of year for gold and silver. The best time of year is September through January. I'm hoping that this trend isn't the case this year, but I'm afraid hope may not be enough.
Today's action in gold is very encouraging. If gold can hold and close above $1250 for a couple days, we may have finally broke new ground. Shorts, like Tom O'brien, may be forced to cover. Even bigger shorts, like JP Morgan, who knows what they'll do. Anyway, I never sold anything believing in the gold story even though I was nervous that $1250 could be a barrier that could mess up the story. I do remain bearish on the stock market. If the stock market takes another tumble, it will be anyone's guess as to which way gold will trade. It's gone both directions in recent months in comparison to the moves in the stock market.
I do still believe that deflation is the predominant trend right now. Inflation can only take charge if the governments around the world choose to use any means to reflate. It looks like the U.S. and Europe are in disagreement right now about what approach to take. Europe is in an austerity mode and the Obama administration at least wants to keep stimulating. I believe Bernanke is a perennial inflator. But the mood in the country is against deficits. We do live in interesting times.
I know it's dangerous to place too much power in any one guru. I've had my share of disappointments after putting people in pedastals. And I admit I've only been following Tom O'brien for about a month. He's actually been bearish on gold for probably several months. He's actually the opposite of Robert Precheter, in that he's a technician and has no ideology to push. He's the author of the best seller "Timing of the Trade". He uses volume to determine his bullishness or bearishness at any given time. Specifically here's why his bearishness made me nervous.
Tom O'brien was rated #1 market timer by a market timing publication:
http://eon.businesswire.com/portal/site/eon/permalink/?ndmViewId=news_view&newsId=20090504006077&newsLang=en
Tom O'brien called the bottom of the cyclical bear market in March 2009:
http://eon.businesswire.com/portal/site/eon/permalink/?
If you don't get his radio show during the day, you can listen to archives of his radio show on his TFNN web site.
http://marketclues.blogspot.com/2010/05/tom-obrien-calls-top-in-gold.html
The price of gold may determine whether USSIF can break out to new highs, or be held down. Gold is trading at key resistance level ($1250). It's been unable to bust through this level in the past couple attempts and today's attempt once again failed. My worry is that if gold can't overcome the $1250 barrier once and for all, it could crash back down and take silver with it.
Most of us posting here are believers in precious metals or we wouldn't be invested in a stock like USSIF. We believe that fiat currencies are all in big trouble and the only safe haven is PMs. At least that's where I come from.
Even if the above is true that doesn't mean that we can spend a long time waiting for it all to play out. The dollar remains the world's reserve currency. In times of trouble, investors the world over keep coming back to the dollar. As long as the dollar is strong, it can put downward pressure on PMs and other commodities.
I don't know if anyone here follows Tom O'brien. He's got a radio show and web site (TFNN.com). I've only been listening to the guy for a month or so. But I'm very impressed with his trading prowess. He was rated number 1 market timer last year I believe by some market timing analysis.
In any case Tom O'brien is very bearish on both stocks and PMs. He's currently short silver. His view is that we are going to have another deleveraging route like 2008 where all asset classes are taken down and the dollar flies skyward.
While I'm very impressed with this guy, I haven't yet pulled the trigger on selling any of my PM holdings because as I said above, I'm a believer in PMs and the vulnerability of fiat currencies. Still I am a nervous bull. And until gold can convincingly take out $1250, I will remain very nervous.
We're seeing the effects of another deflationary scare. Precedents are different than 2008 but the reaction of the markets are similar...with the exception of gold thus far. I carry an inflationary bias longer term, but what we are seeing is waves of deflation and inflation and right now we are back in a deflationary wave. If the stock market takes out the February lows and moves further down from there, all commodities, including gold and silver could be taken down with it. From the people I read, we could see a downside silver price of $14.00 again. Even with this negative scenario, I'm not selling anything including this stock. Governments are going to print like crazy to combat deflation and both gold and silver should benefit in the end. If you maintain a Robert Prechter deflationary collapse view, then you want to be in cash and Treasury bonds. Otherwise you have to own some PMs.
I'm encouraged by the action of gold today. I've been expecting a downdraft in the stock market for a while. I feared that a nasty fall in the stock market would take PMs with it as it did in 2008. For a while there it looked like it might happen as gold approached $1200. But $1200 held and today gold is rising while the stock markets are getting thrashed. The real test will come if the stock market falls decidedly below its February lows in the S&P 500 1040 range. At that point we could go into stock market crash mode. Then everything will be tested.
Silver is moving more with the industrial commodities than gold today. But I think over time silver will follow gold more than the industrial commodities if gold in fact becomes the monetary safe haven that many of us doom and gloomers believe it to be. As long as gold is moving in the upwards direction, I'm not going to be overly concerned about silver. Silver will eventually follow gold higher.
I continue to like the direction and news coming from the company. But....as the permabear, I am getting increasingly antsy about the action in the larger stock market right now. If the February lows are taken out, we could see a real nasty stock market for a while, and a return of the deleveraging seen in 2008. If that happens, it could take precious metals with it, at least in the short term. I continue to maintain my holdings longer term, because I don't think there is a better asset class to hold in these very troubling times. But that doesn't mean we can't see some nasty corrections along the way, and I wouldn't be surprised if one is around the corner here. The rational investment for folks during these troubled times should be precious metals, and I think they will be in the longer term. But short term anything can happen. I mean who in heck would want to buy longterm bonds right now when the U.S. is running trillion dollar deficits? And yet U.S. treasury bonds seem to continue to be the place the world runs when everyone gets scared.
As I said yesterday, a confluence of factors is working in US Silver's favor, most notably improvement in the company's operatios and profits as well as the breakout in gold to all-time highs with silver riding right along.
The biggest thing I worry about here is the powers that be fighting the price of gold higher. We all know all the markets are manipulated more now than they've ever been in history. The stock market has been propped up. The bond market has clearly been propped up by the Fed throwing money at the banks which in turn throw money into both the bond and stock markets. And we know how JP Morgan and the powers that be have held the price of gold down for years. Precious metal prices show the vulnerability of fiat currencies, including the U.S. dollar. The powers that be won't let gold and silver run to infinity without a fight.
With gold (quietly) hitting a new all-time high above $1230 today and with silver prices approaching $20 again, we now have a good combination of factors that could finally propel this stock as well as other PM stocks higher. Gold has been grinding higher without all the hoopla it did the last time. We all know that global fiat currencies are all getting decimated right and left. Precious metals are becoming the last monetary place to hide. Investors around the world are slowly discovering this, as are central banks like China, India and Russia. At this moment in time gold isn't getting a whole lot of attention. When the public starts focusing on it as the hot asset to be in, then everything associated with it will shine. A stock like this, with an attractive valuation, and actual profits under its belt, is just waiting to be discovered by the masses. Once it does, it will be trading much much higher in a very short period of time.
We all have to remember this is still a $.16 stock. Anytime you buy a penny stock, you know you're rolling the dice. The vast majority of penny stocks are losers. We're hoping this is the exception to the rule. A few penny stocks hit it huge. I know because I've been in a few back in the roaring 1990s. I bought this stock knowing I could get my butt kicked. I also thought buying a penny, I might make a whole lot of dough if everything came together just right. I still think the single biggest factor in making this stock go is the price of silver itself. Many precious metals bugs believe that we are in very precarious economic times with fiat currencies all vulnerable to major meltdowns. I also believe that precious metals are in the middle to later stages of a longterm secular bull market. I remain pretty confident that gold and silver are both going higher in the coming years. If I am right, I believe that when the mania phase hits in precious metals, we will see gold and silver prices much much higher than where they are today. The question for me is whether they go higher in time to save this very speculative junior mining company.
It seems crazy that the dollar remains the safe haven asset of the world in troubled times with all of the debt the U.S. is taking on and the incredible rise of the Fed's balance sheet to save the economy. But that's still where we're at. Currencies are all relative against one another. And for some reason when the dollar rises against the weaker currency, that is bad news for precious metals. At some point in the future this should change. I heard analysts on CNBC talking today about the debt per GDP is comparable between Greece and the U.S. The U.S. isn't doing a whole lot better than these European countries that are now in so much trouble. It should be only a matter of time before the U.S. faces the same type of debt crisis and dollar crisis that Europe is facing today.
There is the counter argument made by deflationists like Robert Prechter that debt will overwhelm any government effort to reflate. They say that the dollar is king in such an environment and you want to own treasury bonds. Prechter is ambivalent on gold but generally isn't a big fan.
http://www.prnewswire.com/news-releases/nia-declares-silver-best-investment-for-next-decade-79053847.html
NIA Declares Silver Best Investment for Next Decade
FORT LEE, N.J., Dec. 11 /PRNewswire/ -- The National Inflation Association today released the following statement to its http://inflation.us members:
"We are less than three weeks away from entering the next decade. The most important thing you need to know entering 2010 is that silver is the single best investment for the next decade. In our opinion, investing into silver is the only sure way to tremendously increase your purchasing power over the next ten years.
Throughout world history, only ten times more silver has been mined than gold. If you go back about 1,000 years ago between the years 1000 and 1250, gold was worth ten times more than silver worldwide. From year 1250 to 1792, the gold to silver ratio slowly increased from 10 to 15 and the Coinage Act of 1792 officially defined a gold to silver ratio of 15. The ratio remained at 15 until forty-two years later when the ratio was increased in 1834 to 16, where it remained until silver was demonetized in 1873.
The gold to silver ratio remained between 10 and 16 for 873 years! It is only over the past 100 years that the gold to silver ratio has averaged 50. History will look back at the artificially high gold to silver ratio of the past century as an anomaly, caused by the dollar bubble and the world being deceived into believing that fiat currencies are real money, when in fact they're all an illusion. Next decade, the fiat currency experiment will end badly in a currency crisis. The wealthiest people will be those who bought silver today and were smart enough to research and pick the best silver mining stocks.
While the vast majority of the gold ever produced remains sitting in vaults, 95% of the silver produced has been consumed by industry for thousands of applications in such tiny amounts that most of it will never be recycled and seen on the market again. Nobody knows the exact above ground supply of silver today, but most likely it is somewhere in the neighborhood of 1 billion ounces. That's a total worldwide market value of only $17.4 billion, when the world has over $7 trillion in foreign currency reserves, mostly in fiat currencies that they will need to diversify out of due to rampant inflation.
Besides the fact that the world has been ignoring the monetary value of silver, silver prices are artificially low due to a large concentrated naked short position. It's not a coincidence that the day silver reached its multi-decade high of over $21 per ounce in March of 2008, was the same day Bear Stearns failed. Bear Stearns was a holder of a massive short position in silver. In our opinion, this was likely a naked short position because there is nobody in the world who owns such a large amount of silver for Bear Stearns to have borrowed.
The reason why we believe the Federal Reserve was so eager to orchestrate a bailout of Bear Stearns, is because Bear Stearns was on the verge of being forced to cover their silver short position. Because the silver market is so small and tightly held, if Bear Stearns was forced to cover their short position, silver prices could've potentially rose to $50 per ounce or higher overnight. The world would've seen how economically unstable our country is and confidence in the U.S. dollar would've rapidly deteriorated.
JP Morgan still holds the silver short position they inherited from Bear Stearns. The concentrated naked short position in silver today is the largest short position in the history of all commodities, as a percentage of its market size. Eventually, JP Morgan will have to cover this short position or it could jeopardize their existence.
The best evidence that the short position in silver is naked and not backed by real silver, is the differential between what silver trades for on the Comex and what real people are willing to pay for physical silver on eBay. Every hour on eBay, there are dozens of one ounce silver coins selling for approximately $25. That's about a 43% premium over the current spot price of silver. With so much demand for physical silver, we doubt the silver shorts in the paper market will be able to manipulate prices downward for much longer. A major short squeeze could be right around the corner and silver could take off in a way that shocks even those who are most bullish."
We will soon be releasing our unbiased report reviewing all of the major online sellers of gold and silver bullion. If you would like your friends and family to receive our special upcoming report, please tell them about NIA and have them subscribe for free at: http://inflation.us
I liked the fact the company was very straightforward and honest in their reporting both the good and the bad. No b.s. and hype as we see from most small companies. With the price of silver up so dramatically, the earnings going forward should get better and better. If I read the report correctly, the income was based on an average silver price of a little over $13. Today the silver price is over $18. That increase should go directly to the bottom line. And like everyone else, successful completion of the second shaft should really ramp up production, which should lead to significantly more income in future quarters.
Good point about JP Morgan. They supposedly hold a massive short position on silver. We may be see some short covering panicking going on today.
As long as gold and silver prices keep rising, this stock should be fine (assuming there's nothing bad going on behind the scenes that we don't know about). This stock is invisible both to the larger PM stock world and even to the penny stock world. I'm not sure I'd even want to see the penny mania come in here right now. What I want to see is PM prices keep rising. When this stock finally reaches the investing public's radar screens, it will rise so fast, you won't be able to follow it on the charts.
Interesting analysis in how in pertains to small PM stocks like US Silver.
http://safehaven.com/article-14489.htm
excerpt:
Late-Stage Stocks
Some junior gold mining stocks have had huge upward moves this year, but there are still plenty that haven't gained much ground at all. Furthermore, there is often no company-specific reason for the lacklustre performance, other than an absence of exciting news. Pediment Gold (TSX: PEZ), which was added to the TSI Stocks List early last week, is a good example. There are many other examples, some of which we intend to highlight at TSI over the weeks ahead as long as our overall market outlook doesn't change.
One of the most interesting characteristics of the micro-cap stocks that lie at the speculative end of the gold sector is that these stocks regularly don't do much until the final stage of an intermediate-term gold rally, at which point they take off. It is not uncommon for the bulk of their gains to occur during the last few weeks of a 6-12 month advance, and they can even gain considerable ground after the gold-stock indices have already reached intermediate-term peaks. That's why we (and others) refer to them as "late-stage stocks".
Our point is that even if the HUI is now within 10% of an intermediate-term peak, there is probably still some very interesting upside potential within the ranks of the smallest gold stocks. Of course, speculators must balance the reward potential offered by the juniors towards the end of a gold-sector rally against the risk of overstaying one's welcome and becoming caught-up in the subsequent large declines that most of these stocks WILL experience.
I always enjoy these video technical analyses. Here's one on gold.
http://broadcast.ino.com/education/gold93/
Much better action today. Gold is once again fighting the $1,000 resistance level. As I've been saying for a while, the gold and silver price should determine the prospects for the U.S. Silver stock price. If gold can break through $1,000 once and for all and silver rides the gold wave, we should see much higher prices here. The next couple weeks are critical.