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.
We have all heard this but needs to be repeated on a day like today:
Thomas Jefferson said in 1802:
I believe that banking institutions are more dangerous to our liberties
than standing armies. If the American people ever allow private banks to
control the issue of their currency, first by inflation, then by deflation,
the banks and corporations that will grow up around the banks will deprive
the people of all property - until their children wake-up homeless on the
continent their fathers conquered.
Silver is the Precious Metal of Choice
Kenneth Schortgen Jr
In older times, financial planners would say to buy safe assets like annuities or bonds for wealth protection. Realtors would tell us that land is the way to go since they aren't making any more of it, and the business world would try to sell you on the value of the stock markets to grow your investment dollars.
Those financial vehicles are fine, only when used in the proper cycle of the markets. However, with the current recession we are in, NONE of these products are anywhere near safe, nor viable as the government works to create inflation through the Fed's quantitative easing.
So what are we left with to invest in, especially for wealth protection? The answer is tangible assets you can hold in your hand, and that have the fluidity to sell when necessary.
Bill Gross of Pimco, the largest bond dealer in the country, came out this week and said the 30-year treasury is done... history. The actions of the Fed to print money through QE1 and soon to be QE2 will end the market for these long-term bonds.
We at PIMCO join with Ben Bernanke in this diagnosis, but we will tell you, as perhaps he cannot, that the outcome is by no means certain. We are, as even some Fed Governors now publically admit, in a "liquidity trap," where interest rates or trillions in QEII asset purchases may not stimulate borrowing or lending because consumer demand is just not there. Escaping from a liquidity trap may be impossible, much like light trapped in a black hole. Just ask Japan. Ben Bernanke, however, will try - it is, to be honest, all he can do. He can't raise or lower taxes, he can't direct a fiscal thrust of infrastructure spending, he can't change our educational system, he can't force the Chinese to revalue their currency - it is all he can do, and as he proceeds, the dual questions of "will it work" and "will it create a bond market bubble" will be answered. We at PIMCO are not sure.
But either way it will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.
The stock markets have been booming in anticipation of the FED's QE2 actions, and much of the money invested over the last few months into companies is not from retail investors or mutual funds, but primarily financial institutions such as JP Morgan, Citi, and Goldman Sachs using free money from the Fed at low interest rates. What you have seen since the DOW cracked 10,000 this last time is mostly HFT trading used to make the markets mask the true state of the economy. If QE2 starts to cause massive inflation as expected, then the markets will assuredly go up in a parabolic curve because the value of money will inflate them as well. In 1920's Germany and Zimbabwe earlier this decade, both of their stock markets soared to massive highs just before the currency collapsed and went hyper-inflative.
When you then look at what will be of value, and not tied to paper, you have to reckon hard assets, or other currencies that will benefit by a dollar crash. There are few world currencies that are strong enough on their own at this time to hold in lieu of the dollar, but two that have potential are the Canadian Loonie, and the Swiss Franc. Their monetary policies and lack of debt will make them very enticing as we go into QE2.
However, since America doesn't have places to exchange for currency at our corner banks, what is left is the universal money known as gold and silver.
Gold now is at a price where most could not afford to purchase, especially since it climbed over $1300 and is holding above that line. However, silver is still low enough where the common American and investor alike seeking wealth protection can buy some with a large potential for profit and protection.
Silver has been held down in price for years due to bank manipulation. In fact, the CFTC came out recently and said that there is more paper sold in the silver ETF's by 100 fold than actual silver available for delivery. That news, along with other factors may be changing, and a recent lawsuit against JP Morgan and HSBC could break this manipulation into one of the biggest short squeezes of all time.
Technically, silver is on pace to break the $30.00 barrier, and possibly by the end of November. James Turk, a commodities analyst out of London, provided a chart and technical layout for $30.00 within the next 3 weeks.
Silver is also one of the most highly used metals in industry, and will be a catalyst for any future recovery. By holding physical silver, especially when market manipulation by the banks may be coming to an end, your advantages far outweigh the limited disadvantages and bear the potential for both profit and wealth protection.
Remember... up until the late 19th century, the gold/silver ratio was at 10:1 or 15:1. If that natural ratio comes back into play, then silver right now would be at $136.00 an ounce. And that doesn't take into account their is LESS silver above ground than gold, and gold isn't used in todays technology or industry as silver is.
Silver is the Precious Metal of Choice
Kenneth Schortgen Jr
In older times, financial planners would say to buy safe assets like annuities or bonds for wealth protection. Realtors would tell us that land is the way to go since they aren't making any more of it, and the business world would try to sell you on the value of the stock markets to grow your investment dollars.
Those financial vehicles are fine, only when used in the proper cycle of the markets. However, with the current recession we are in, NONE of these products are anywhere near safe, nor viable as the government works to create inflation through the Fed's quantitative easing.
So what are we left with to invest in, especially for wealth protection? The answer is tangible assets you can hold in your hand, and that have the fluidity to sell when necessary.
Bill Gross of Pimco, the largest bond dealer in the country, came out this week and said the 30-year treasury is done... history. The actions of the Fed to print money through QE1 and soon to be QE2 will end the market for these long-term bonds.
We at PIMCO join with Ben Bernanke in this diagnosis, but we will tell you, as perhaps he cannot, that the outcome is by no means certain. We are, as even some Fed Governors now publically admit, in a "liquidity trap," where interest rates or trillions in QEII asset purchases may not stimulate borrowing or lending because consumer demand is just not there. Escaping from a liquidity trap may be impossible, much like light trapped in a black hole. Just ask Japan. Ben Bernanke, however, will try - it is, to be honest, all he can do. He can't raise or lower taxes, he can't direct a fiscal thrust of infrastructure spending, he can't change our educational system, he can't force the Chinese to revalue their currency - it is all he can do, and as he proceeds, the dual questions of "will it work" and "will it create a bond market bubble" will be answered. We at PIMCO are not sure.
But either way it will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.
The stock markets have been booming in anticipation of the FED's QE2 actions, and much of the money invested over the last few months into companies is not from retail investors or mutual funds, but primarily financial institutions such as JP Morgan, Citi, and Goldman Sachs using free money from the Fed at low interest rates. What you have seen since the DOW cracked 10,000 this last time is mostly HFT trading used to make the markets mask the true state of the economy. If QE2 starts to cause massive inflation as expected, then the markets will assuredly go up in a parabolic curve because the value of money will inflate them as well. In 1920's Germany and Zimbabwe earlier this decade, both of their stock markets soared to massive highs just before the currency collapsed and went hyper-inflative.
When you then look at what will be of value, and not tied to paper, you have to reckon hard assets, or other currencies that will benefit by a dollar crash. There are few world currencies that are strong enough on their own at this time to hold in lieu of the dollar, but two that have potential are the Canadian Loonie, and the Swiss Franc. Their monetary policies and lack of debt will make them very enticing as we go into QE2.
However, since America doesn't have places to exchange for currency at our corner banks, what is left is the universal money known as gold and silver.
Gold now is at a price where most could not afford to purchase, especially since it climbed over $1300 and is holding above that line. However, silver is still low enough where the common American and investor alike seeking wealth protection can buy some with a large potential for profit and protection.
Silver has been held down in price for years due to bank manipulation. In fact, the CFTC came out recently and said that there is more paper sold in the silver ETF's by 100 fold than actual silver available for delivery. That news, along with other factors may be changing, and a recent lawsuit against JP Morgan and HSBC could break this manipulation into one of the biggest short squeezes of all time.
Technically, silver is on pace to break the $30.00 barrier, and possibly by the end of November. James Turk, a commodities analyst out of London, provided a chart and technical layout for $30.00 within the next 3 weeks.
Silver is also one of the most highly used metals in industry, and will be a catalyst for any future recovery. By holding physical silver, especially when market manipulation by the banks may be coming to an end, your advantages far outweigh the limited disadvantages and bear the potential for both profit and wealth protection.
Remember... up until the late 19th century, the gold/silver ratio was at 10:1 or 15:1. If that natural ratio comes back into play, then silver right now would be at $136.00 an ounce. And that doesn't take into account their is LESS silver above ground than gold, and gold isn't used in todays technology or industry as silver is.
The Imminent Currency Collapse, a Possible Solution
Szandor Blestman
I apologize to my readers in advance for this article as I am going to take a slight left turn to my usual opinion. While I remain a staunch advocate of free markets and a voluntary society, I accept that there is a need to acknowledge the reality that exists. While I believe that the current power structure needs a major overhaul, I understand that change needs to come about gradually and peacefully, otherwise the violence inherent in the system perpetuates itself. When it comes time to examine these issues and consider solutions to existing problems, one should try to consider how to make changes that will impact the common folk in the least painful way.
I don't normally like to suggest solutions involving government. I feel it is more important to minimize government involvement and empower the common folk to take control and responsibility for their own lives. That's what independence is about, to be independent of government intrusion instead of dependent upon it. But the current economic situation is so dire that it becomes nearly impossible to imagine a solution that won't drastically affect common folk without involving the monopolistic power of force that government wields.
I think that whatever solutions are implemented, they will involve pain. The question is, who's going to feel the pain? I believe that the moneyed elite, the very people who engineered this system, should be the ones to feel the greatest amount of pain, not the common folk who simply used the system they were born into, the one they were trained from birth to use, for they could hardly imagine living outside this system and were led to believe they had no power to change it.
The first step in implementing a solution, in my opinion, is to stop living in denial. We as a society need to acknowledge that there is a problem, and we need to recognize where the problem stems from and who is to blame for the problem. The economic problems we face today, in my opinion, stem from the monopolistic, centralized fiat currency systems set up in nations across the world. These central banks have the ability to issue currency to their respective governments and to indebt that nation's populace with little or no risk to themselves. Such absolute power should be abhorrent to people who wish to remain free and independent, for the lack of accountability in such systems allows for corruption to creep in and corrupt absolutely. The rich get richer and the poor get poorer.
The problem is debt. It's not just debt, it's the way it's created. Because of the fractional reserve nature of modern debt, money is created to be lent but the money needed to pay for the interest on the debt is never created. Debt just keeps growing, much like government. It is so pervasive, that I think it is safe to say that the vast majority of nations are as good as insolvent. While you or I can manage debt by producing and earning money to pay it back, governments don't know how to legitimately produce and have to depend on stealing from the private sector in the form of taxation, levies, fines, tariffs or some other questionable means in order to pay their debt. Sooner or later, the bust part of the boom/bust cycle has to occur. It's inevitable in such an unstable system as a fiat, debt driven system is.
There's a man out there named Webster Tarpley who has his own ideas about the best way to run an economy. While there is much he advocates which I disagree with, he does advocate one idea I very much agree with. He believes there should be a debt moratorium instituted. I can see that. I think it should be taken a step further. It seems to me that, at least in this nation, the system of central banking that was created is fraudulent and illegal. There are many legal and moral arguments to support this position, most of which have been perverted by a justice system in this nation that has been compromised by the same corporate interests that stood to gain when the Federal Reserve system was adopted. This fraud and corruption needs to be investigated, exposed and explained and those responsible for its implementation and continuation need to be held to account.
While the economy seems entangled and complicated, one thing seems certain, debt is out of control and it seems almost everything is actually owned by a few large banks. It is these banks that should shoulder the burden of the collapsing economy, not the common folk who are currently paying for the mistakes of the moneyed elite. Foreclosures are occurring in ever increasing numbers and unemployment continues to soar while the richest among us seem to profit from the misery of the masses. Money is flowing to the top of the pyramid while the base wilts in a drought of epic proportions. This tendency needs to be reversed.
I think it is time for government to work for the masses, rather than against them. It is time for government to show they are not just puppets for the big corporate banking establishment. I think it is time for them to help clear up the mess they helped to create. It can start by sorting out this foreclosure/derivative mess. Perhaps in the course of implementing a debt moratorium we can find the political will to help those who have dutifully followed the rules and yet find themselves now getting screwed. Perhaps some rules could be set up, something like anyone who has paid more than twice the amount of the principal for a mortgage now owns the title to the home, free and clear. Perhaps something similar could be done to those who have paid a certain percentage more than the principal borrowed on credit cards or other lines of credit, but still find themselves deep in debt due to the high interest rates charged. After all, it certainly wasn't the borrowers' fault that the profits made by the big banks were squandered. Sure, the banks and those who invested in their fraudulent schemes might take a beating, but that would certainly be one way to funnel the "stimulus" money to those people it was supposed to help.
The establishment politicians said a couple years ago that bailouts were necessary, that the corporate banks who needed the help of middle class Americans in order to survive were too big to fail. I think they were wrong. I think the corporate banks had already failed. If they hadn't been bailed out, someone who knew better what they were doing would have stepped in to take their place. Sure, many at the top of the heap may have found themselves knocked down a few notches, but the bad debt would hopefully have been cleansed from the system and the economic downturn would now be naught but a bad memory. Instead, the politicians stepped in, bailed out their rich elite buddies, and made sure to drag out the economic crisis so that our great-great grandchildren will still be paying.
Auditing the fed is but a necessary step. After that is done and the obvious theft and corruption is exposed, arrests need to be made. Not just any arrests, arrests of the very richest banking elites. These people need to be held accountable, and they need to be made to forfeit their vast wealth for the illegal nature in which it was obtained. If one wishes to talk about a redistribution of wealth, then the elite players who have used the government monopoly on force to stifle and destroy competition for far too long should be the number one targets. After that, the fed should be eliminated and the currency they created should be replaced by some kind of commodity based currency or a competitive currency marketplace.
I'm all for eliminating as much government power as possible, especially when it comes to centralized federal power. I'm all for governing through a free market, voting with one's dollar and one's feet, and with maximizing individual liberty, but the reality is that a police state is descending on this nation, if it hasn't already, and the politicians are protecting the elite while cracking down on the common folk. That apparatus needs to be turned around. The United States federal government was supposed to be set up to protect the common folk from super powerful interests, not the other way around. It's time government and its various arms lived up to their responsibility.
The banking system has failed, or is failing. Our government has failed time and again. There is a better way. I believe we can achieve a voluntary society, one which would be much fairer and more equitable by providing opportunity for all who are willing to work hard. Realistically, however, I don't believe this can be done in the blink of an eye. Since it will take some time to achieve such a freer society, we might as well try to use what exists to prosecute the fraud that was created by the elite few for their benefit. They want all the world's wealth delivered into the hands of a few elite. Government, so long has it exists, should help keep that from happening by providing an environment conducive to rewarding honesty and hard work.
I was listening to Rush today and he had a caller who said that tomorrow the Federal Reserve was going to do more or just as much damage to our country than any of these politicians will do. He went into a little more detail but Rush cut him off and basically backed the Fed. It is sad to me that such bright minds as Rush and Mark Levine think that our central bank has nothing to do with our financial problems. It seems that they are so set on disagreeing with the Left that they won't even look into our unconstitutional monetary system because "the liberals hate the banks so we must support them," mentality. Completely clueless that if we were to abolish the Fed and end our fiat monetary scam, then the whole nanny state, welfare system would cease to exist because the system could not be supported through traditional tax and spend economics. That's why a Fascist like Woodrow Wilson started the Fed!! In order to support the welfare state. They won't see it until the dollar is toilet paper and then they will be saying they knew it all along... Truly sad.
Extreme Readings in Bullish Investor Sentiment as Insiders Bail at Highest Rate Ever Tracked
http://globaleconomicanalysis.blogspot.com/2010/11/extreme-readings-in-bullish-investor.html
We need enough of them to fill both sides of the house!!
That's why I don't think tomorrow will make a difference! You are right and that is the problem. The liberals have put it in overdrive and need to be stopped. The Republicans are not conservatives, they are big government Neocons!! We need small government Jeffersonian Conservatives, but people won't vote those "radicals" into office anymore.
I completely agree! I have said that to many people in the last few months and I always get a weird look from them. We are going bankrupt no matter who wins in my opinion, however, these big government liberals need to lose power for a long time.
Anyone have thoughts on tomorrows elections? Does anybody care???
Who Wants to be a Millionaire?
Peter Souleles
The word "millionaire" first made its American print debut in an obituary for Pierre Lorillard II in 1843 when he died leaving behind a fortune of over $1,000,000. He wasn't of course the wealthiest man of his time but then again a million dollars was a stratospheric figure for the average man. Since then, inflation has bestowed the title of millionaire on countless more individuals. In recent years most of them lived in Zimbabwe.
But what makes a millionaire?
In 1843 the average price of gold was $18.93 in US dollar terms. A person having a million dollars could therefore buy 52,826 oz of gold. Even in 1929, a million dollars could still buy 48,473 oz.
On Friday, the price of gold closed at $1,359.80. With a million dollars you could therefore buy only 735 oz or 1.5% of what you could buy in 1929. In other words the dollar has lost 98.5% of its value since 1929 in comparison to gold. I think this is why US currency has the words, "In God we Trust" printed on it because to trust in the printed dollar would be lunacy.
An alternative exercise would be to calculate who the real millionaires are in 2010. Taking the 1929 amount of 48,473 oz as the mark of a true millionaire, we find that only someone with at least $65,913,585 can be considered for the title.
Do you want to try your luck with silver? Well in 1929 the average price of silver was 48.8c. Therefore a million dollars would buy you 2,049,180oz. The closing price of silver on Friday was $24.75 which would require you to have $50,717,205 to be considered the equivalent of a 1929 silver millionaire. The dollar has lost therefore about 98% of its value since 1929 in silver terms.
Interestingly enough, James Turk announced the other day that silver would go to $30 within just a few weeks.
This would push up the amount to $61,475,400 for anybody wishing to be considered a true silver millionaire in 1929 terms. This would somewhat align the movements in silver and gold prices.
The reality is that the world of fiat currencies, combined with Fed induced inflation, has created countless millionaires who in reality are deluded both about their wealth and the system.
Pulitzer Prize-winning tax reporter David Cay Johnston recently reported that the number of Americans earning over $50 million a year fell to 74 in 2009. Interestingly enough these 74 individuals earned an average of $519 million per annum.
The frightening statistic is that these 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers. To put that in simple terms, each of these millionaires made 256,756 times more than one of these workers.
Please note that I am not espousing the politics of envy or redistribution. In fact inequality is central to economic dynamism and development for all participants. If the system somehow was able to achieve equality it would also destroy itself as there would be no incentive to produce, save or innovate. Communist regimes are a stark reminder of this.
What we must realise however is that excesses well beyond the mean have been allowed to develop that have rendered the present system impotent and fragile in the face of disaster. Money printing and lending en masse is nothing more than "monetary Viagra" that does not increase the virility or potency of the system. As Brian Bloom wrote back in November 2009:
"Yes, the equity markets can continue to rise from here. But the manufacturers of Viagra caution against the use of their product by heart patients. The US economy has a weak heart. Too much monetary Viagra can cause it to drop down dead from heart failure."
Currency wars, quantitative easing, stimulus checks, zero interest rates, lopsided free trade, etc are poor quality policies/strategies that are destined to not only fail but also to increase the size of the final explosion/implosion.
The year opened with an investor needing 9.29 oz of gold to buy the Dow. On Friday an investor needed only 8.17oz. Despite this, the doubt about gold still continues in spite of the run up over the last 11 years and its 5000 year pedigree.
The U.S. public pension schemes, its stock market, its banks, its residential and commercial property are all D Grade. By the way even the nation's professional engineers have given US infrastructure a D Grade. The education system must also be D Grade given that total student loans account for more than the total amount of credit card debt. Education is supposed to set you free. In the USA it enslaves you. In the western world a man's home is considered his castle. Now it is considered his dungeon. The USA's factories have been sold overseas and its workers sold out. Now everything is for sale or lease, whether it be a highway or a parking meter.
The motto "Yes We Can" is not an Obama slogan. It has been the slogan of successive US governments who have pursued policies that could not be accommodated or sustained within a longer term economic context. "Yes We Can" is simply a shortened version of "Yes we can make our children pay for it all." But will they? I somehow doubt it. The honeymoon for the US economy, its dollar and its taxpayer is over.
Professor Kotlikoff estimates that the US government has a $202 trillion fiscal gap. That my dear readers is not a gap....it's a black hole from which no one can emerge. To that fiscal gap one might want to add the tremendous fiscal gap in personal finances both on the balance sheet and the income statement.
What is certain is that expectations of future government payments and services will not materialize in full given the unfunded nature of the system to date and for the foreseeable future. Is it any wonder that people seek wealth preservation in gold and silver?
The critics of gold always like to remind us that all of the gold ever mined is still in existence except for what may have been lost in ship wrecks. Well that's true, but what is also indisputably true is that all of the paper money ever produced has or will bite the dust. The critics tell us that gold pays no interest yet this is what makes gold so attractive. A bank deposit makes interest which is subject to taxes and inflation year after year. Gold and silver retain "value" which is subject only to tax at a time of your choosing if you decide to sell.
Some call gold a "fear metal" and that to an extent is true. I say it's a sure bet against guaranteed government insanity. Gold and silver will in the long run turn paper millionaires into paper billionaires. They will not however compound in real value (save over short periods of time of upheaval as in the last 10 years) for the simple reason that no asset class can in relative terms outstrip all other asset classes ad infinitum. If it were possible then we would have the ridiculous situation of one oz of gold being passed along for the last 2000 years now being worth a house or a farm or much more.
Gold will however continue to increase in relative value for quite some time as society flushes out excesses in the system. Remember, gold and silver is not only about what you might gain but more so about what you might avoid losing. In the current climate much has been lost and much more is to be lost. Gold and silver are the great fulcrums that silently watch a see-sawing society go from one extreme to another.
The economic, political and social pots of this world are simmering ominously. To the people who wish to avoid the cannibals' pots in banking and government, I say "buy a little gold and silver and be patient."
Yes, dear readers, there are many definitions of "millionaire" but remember that the only true millionaire is the person who is content with what he has.
Peter Souleles
Sydney Australia
Who Wants to be a Millionaire?
Peter Souleles
The word "millionaire" first made its American print debut in an obituary for Pierre Lorillard II in 1843 when he died leaving behind a fortune of over $1,000,000. He wasn't of course the wealthiest man of his time but then again a million dollars was a stratospheric figure for the average man. Since then, inflation has bestowed the title of millionaire on countless more individuals. In recent years most of them lived in Zimbabwe.
But what makes a millionaire?
In 1843 the average price of gold was $18.93 in US dollar terms. A person having a million dollars could therefore buy 52,826 oz of gold. Even in 1929, a million dollars could still buy 48,473 oz.
On Friday, the price of gold closed at $1,359.80. With a million dollars you could therefore buy only 735 oz or 1.5% of what you could buy in 1929. In other words the dollar has lost 98.5% of its value since 1929 in comparison to gold. I think this is why US currency has the words, "In God we Trust" printed on it because to trust in the printed dollar would be lunacy.
An alternative exercise would be to calculate who the real millionaires are in 2010. Taking the 1929 amount of 48,473 oz as the mark of a true millionaire, we find that only someone with at least $65,913,585 can be considered for the title.
Do you want to try your luck with silver? Well in 1929 the average price of silver was 48.8c. Therefore a million dollars would buy you 2,049,180oz. The closing price of silver on Friday was $24.75 which would require you to have $50,717,205 to be considered the equivalent of a 1929 silver millionaire. The dollar has lost therefore about 98% of its value since 1929 in silver terms.
Interestingly enough, James Turk announced the other day that silver would go to $30 within just a few weeks.
This would push up the amount to $61,475,400 for anybody wishing to be considered a true silver millionaire in 1929 terms. This would somewhat align the movements in silver and gold prices.
The reality is that the world of fiat currencies, combined with Fed induced inflation, has created countless millionaires who in reality are deluded both about their wealth and the system.
Pulitzer Prize-winning tax reporter David Cay Johnston recently reported that the number of Americans earning over $50 million a year fell to 74 in 2009. Interestingly enough these 74 individuals earned an average of $519 million per annum.
The frightening statistic is that these 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers. To put that in simple terms, each of these millionaires made 256,756 times more than one of these workers.
Please note that I am not espousing the politics of envy or redistribution. In fact inequality is central to economic dynamism and development for all participants. If the system somehow was able to achieve equality it would also destroy itself as there would be no incentive to produce, save or innovate. Communist regimes are a stark reminder of this.
What we must realise however is that excesses well beyond the mean have been allowed to develop that have rendered the present system impotent and fragile in the face of disaster. Money printing and lending en masse is nothing more than "monetary Viagra" that does not increase the virility or potency of the system. As Brian Bloom wrote back in November 2009:
"Yes, the equity markets can continue to rise from here. But the manufacturers of Viagra caution against the use of their product by heart patients. The US economy has a weak heart. Too much monetary Viagra can cause it to drop down dead from heart failure."
Currency wars, quantitative easing, stimulus checks, zero interest rates, lopsided free trade, etc are poor quality policies/strategies that are destined to not only fail but also to increase the size of the final explosion/implosion.
The year opened with an investor needing 9.29 oz of gold to buy the Dow. On Friday an investor needed only 8.17oz. Despite this, the doubt about gold still continues in spite of the run up over the last 11 years and its 5000 year pedigree.
The U.S. public pension schemes, its stock market, its banks, its residential and commercial property are all D Grade. By the way even the nation's professional engineers have given US infrastructure a D Grade. The education system must also be D Grade given that total student loans account for more than the total amount of credit card debt. Education is supposed to set you free. In the USA it enslaves you. In the western world a man's home is considered his castle. Now it is considered his dungeon. The USA's factories have been sold overseas and its workers sold out. Now everything is for sale or lease, whether it be a highway or a parking meter.
The motto "Yes We Can" is not an Obama slogan. It has been the slogan of successive US governments who have pursued policies that could not be accommodated or sustained within a longer term economic context. "Yes We Can" is simply a shortened version of "Yes we can make our children pay for it all." But will they? I somehow doubt it. The honeymoon for the US economy, its dollar and its taxpayer is over.
Professor Kotlikoff estimates that the US government has a $202 trillion fiscal gap. That my dear readers is not a gap....it's a black hole from which no one can emerge. To that fiscal gap one might want to add the tremendous fiscal gap in personal finances both on the balance sheet and the income statement.
What is certain is that expectations of future government payments and services will not materialize in full given the unfunded nature of the system to date and for the foreseeable future. Is it any wonder that people seek wealth preservation in gold and silver?
The critics of gold always like to remind us that all of the gold ever mined is still in existence except for what may have been lost in ship wrecks. Well that's true, but what is also indisputably true is that all of the paper money ever produced has or will bite the dust. The critics tell us that gold pays no interest yet this is what makes gold so attractive. A bank deposit makes interest which is subject to taxes and inflation year after year. Gold and silver retain "value" which is subject only to tax at a time of your choosing if you decide to sell.
Some call gold a "fear metal" and that to an extent is true. I say it's a sure bet against guaranteed government insanity. Gold and silver will in the long run turn paper millionaires into paper billionaires. They will not however compound in real value (save over short periods of time of upheaval as in the last 10 years) for the simple reason that no asset class can in relative terms outstrip all other asset classes ad infinitum. If it were possible then we would have the ridiculous situation of one oz of gold being passed along for the last 2000 years now being worth a house or a farm or much more.
Gold will however continue to increase in relative value for quite some time as society flushes out excesses in the system. Remember, gold and silver is not only about what you might gain but more so about what you might avoid losing. In the current climate much has been lost and much more is to be lost. Gold and silver are the great fulcrums that silently watch a see-sawing society go from one extreme to another.
The economic, political and social pots of this world are simmering ominously. To the people who wish to avoid the cannibals' pots in banking and government, I say "buy a little gold and silver and be patient."
Yes, dear readers, there are many definitions of "millionaire" but remember that the only true millionaire is the person who is content with what he has.
Peter Souleles
Sydney Australia
OFF TOPIC
Happy Birthday Tsar Bomba
That was fun and sad as hell!!!
That's because they know the whole system is a scam and the bottom is about to fall out from underneath the common man. These companies have cut everything they can out of their budgets and if the economy doesn't recover, then the corporate quarterly earnings are going to tank!!
Great song choice!!!
October 28, 2010
Silver Short Position Could Cost JP Morgan Billions in Losses
It was just announced late Wednesday that two lawsuits have been filed in Manhattan federal court against JP Morgan and HSBC Holdings Inc. accusing them of manipulating the price of silver by "amassing enormous short positions". The suits were filed by Brian Beatty and Peter Laskaris, who each claim they lost money trading COMEX silver futures and options contracts as a result of JP Morgan's alleged manipulation.
In NIA's latest documentary 'Meltup' that was released on May 13th, 2010, and has now been viewed by over 855,000 people, NIA's President Gerard Adams exposed the manipulation of silver that has been taking place by JP Morgan. Mr. Adams discussed in detail in 'Meltup' how on March 14th, 2008, the very day Bear Stearns failed was the same day silver reached a multidecade high of about $21 per ounce. According to Mr. Adams, Bear Stearns was on the verge of being forced to cover their naked short position in silver, which could have quickly sent silver as high as $50 per ounce. This would have caused a loss of confidence in the U.S. dollar and a possible currency crisis. Instead of allowing this to happen, the Federal Reserve orchestrated a bailout of Bear Stearns and JP Morgan acquired their assets with the backing of the Fed. Shortly after taking over Bear Stearn's silver short position, JP Morgan was able to manipulate the price of silver down to below $9 per ounce.
NIA exposed in 'Meltup' that JP Morgan was short 30,000 silver contracts representing 150 million ounces of silver. This is one of the largest concentrated short positions in the history of all commodities, representing 31% of all open COMEX silver contracts. NIA found it shocking for this type of a concentrated naked short position to exist in the very metal that the U.S. constitution defined as real money. What NIA found especially frightening is how almost everybody in the mainstream media has ignored and continues to ignore this issue. Not one article in any major financial publication has even questioned why JP Morgan is allowed to hold such a large short position in our nation's single most important commodity.
On February 5th of 2010, when the price of silver was manipulated by JP Morgan down to below $15 per ounce, NIA said, "this is a once in a lifetime entry point for those wishing to go long silver at a bargain basement price". On that day, NIA's President Mr. Adams purchased 1,300 January 2011 $20 call options in the silver ETF at $0.89 per contract and on February 8th, NIA announced his purchase and said to NIA members, "NIA is betting big that this past week's short-term decline in the paper price of silver was just a temporary wash out, before a huge surge in silver prices later in 2010."
On July 28th with the price of silver at $17.63 per ounce, NIA released an article entitled "Gold and Silver Capitulation is Near" in which it said, "The sentiment on gold and silver has abruptly changed to the negative like nothing we have ever seen before and to us this means the big move to the upside is right around the corner." Since NIA's July 28th article predicting silver's big move to the upside was right around the corner, silver has rallied as much as 41% to a high on October 14th of $24.92 per ounce. On October 14th, the very day silver reached its high, Mr. Adams sold his silver ETF call options at $4.25 per contract making a gross profit of $436,800.
Silver, at its current price of $23.69 per ounce, is trading for only 1.78% the price of gold. We have a gold/silver ratio of 56, despite the fact that only ten times more silver has been produced in world history than gold. On December 11th, 2009, NIA declared silver the best investment for the next decade. On December 21st, 2009, in NIA's top 10 predictions for 2010, NIA predicted a sharp decline in the gold/silver ratio, which was 64 at the time. NIA was right, the gold/silver ratio has declined by 12.5% so far this year.
Silver possesses all of the same monetary qualities as gold, but silver is also used for countless industrial applications. 95% of all silver produced in world history has been consumed. World silver inventories have declined from 10 billion ounces in 1940 down to only 1 billion ounces today. Meanwhile, almost all of the gold mined in world history remains in the form of bullion bars stored in vaults. The world has approximately 2 billion ounces of gold inventories today. The total value of the world's gold inventories is currently $2.656 trillion compared to the total value of the world's silver inventories of $23.68 billion. This means the value of the world's gold inventories today is worth an unbelievable 112 times more than its silver inventories.
China has been rapidly diversifying their foreign exchange reserves into gold in an attempt to position the yuan to be the world's next reserve currency. Despite China increasing its gold reserves by 76% in recent years to 1,054 metric tons, the value of China's gold reserves still only account for about 1.5% of its total foreign exchange reserves compared to the average nation of 10%. China needs to rapidly increase its gold reserves this decade, which NIA believes will send gold not just to new nominal highs, but also to new all time highs adjusted to the CPI and the real rate of inflation.
No central banks in the world currently own silver. Imagine if just one central bank of any major country announces a large silver purchase. The world is only producing 709.6 million ounces of silver per year worth a measly $16.8 billion. Total annual silver demand for industrial applications alone is 352.2 million ounces. Once you include photography, jewelry, silverware, and coins & medals, total annual silver demand is already 729.8 million ounces, which is greater than silver production. If a central bank decides to purchase silver, the market is so tight that silver prices could literally rise to $50 per ounce overnight. NIA estimates that $50 per ounce silver would mean approximately $4 billion in losses to JP Morgan.
NIA applauds CFTC Commissioner Bart Chilton for taking the time to publicly comment on Tuesday about the precious metals markets and in particular the silver markets and acknowledging that the public deserves some answers to their concerns that silver markets are being, and have been, manipulated. Mr. Chilton said in a statement, "I believe that there have been repeated attempts to influence prices in the silver markets. There have been fraudulent efforts to persuade and deviously control that price. Based on what I have been told by members of the public, and reviewed in publicly available documents, I believe violations to the Commodity Exchange Act (CEA) have taken place in silver markets and that any such violation of the law in this regard should be prosecuted."
On September 9th, after JP Morgan announced that they would be winding down their proprietary trading operations and laying off their 20 proprietary commodities traders, who NIA believes could be responsible for the current manipulation in silver, NIA released an article entitled, "Is JP Morgan's Silver Manipulation Over?". NIA said in this article that it was "hopeful but skeptical that the manipulation is coming to an end" and "We remain cautiously optimistic at this time." Since this article, it appears as though silver has been trading based on free market forces for the first time in many years. There have been no noticeable attempts to drive down the price of silver through manipulation.
October 28, 2010
Silver Short Position Could Cost JP Morgan Billions in Losses
It was just announced late Wednesday that two lawsuits have been filed in Manhattan federal court against JP Morgan and HSBC Holdings Inc. accusing them of manipulating the price of silver by "amassing enormous short positions". The suits were filed by Brian Beatty and Peter Laskaris, who each claim they lost money trading COMEX silver futures and options contracts as a result of JP Morgan's alleged manipulation.
In NIA's latest documentary 'Meltup' that was released on May 13th, 2010, and has now been viewed by over 855,000 people, NIA's President Gerard Adams exposed the manipulation of silver that has been taking place by JP Morgan. Mr. Adams discussed in detail in 'Meltup' how on March 14th, 2008, the very day Bear Stearns failed was the same day silver reached a multidecade high of about $21 per ounce. According to Mr. Adams, Bear Stearns was on the verge of being forced to cover their naked short position in silver, which could have quickly sent silver as high as $50 per ounce. This would have caused a loss of confidence in the U.S. dollar and a possible currency crisis. Instead of allowing this to happen, the Federal Reserve orchestrated a bailout of Bear Stearns and JP Morgan acquired their assets with the backing of the Fed. Shortly after taking over Bear Stearn's silver short position, JP Morgan was able to manipulate the price of silver down to below $9 per ounce.
NIA exposed in 'Meltup' that JP Morgan was short 30,000 silver contracts representing 150 million ounces of silver. This is one of the largest concentrated short positions in the history of all commodities, representing 31% of all open COMEX silver contracts. NIA found it shocking for this type of a concentrated naked short position to exist in the very metal that the U.S. constitution defined as real money. What NIA found especially frightening is how almost everybody in the mainstream media has ignored and continues to ignore this issue. Not one article in any major financial publication has even questioned why JP Morgan is allowed to hold such a large short position in our nation's single most important commodity.
On February 5th of 2010, when the price of silver was manipulated by JP Morgan down to below $15 per ounce, NIA said, "this is a once in a lifetime entry point for those wishing to go long silver at a bargain basement price". On that day, NIA's President Mr. Adams purchased 1,300 January 2011 $20 call options in the silver ETF at $0.89 per contract and on February 8th, NIA announced his purchase and said to NIA members, "NIA is betting big that this past week's short-term decline in the paper price of silver was just a temporary wash out, before a huge surge in silver prices later in 2010."
On July 28th with the price of silver at $17.63 per ounce, NIA released an article entitled "Gold and Silver Capitulation is Near" in which it said, "The sentiment on gold and silver has abruptly changed to the negative like nothing we have ever seen before and to us this means the big move to the upside is right around the corner." Since NIA's July 28th article predicting silver's big move to the upside was right around the corner, silver has rallied as much as 41% to a high on October 14th of $24.92 per ounce. On October 14th, the very day silver reached its high, Mr. Adams sold his silver ETF call options at $4.25 per contract making a gross profit of $436,800.
Silver, at its current price of $23.69 per ounce, is trading for only 1.78% the price of gold. We have a gold/silver ratio of 56, despite the fact that only ten times more silver has been produced in world history than gold. On December 11th, 2009, NIA declared silver the best investment for the next decade. On December 21st, 2009, in NIA's top 10 predictions for 2010, NIA predicted a sharp decline in the gold/silver ratio, which was 64 at the time. NIA was right, the gold/silver ratio has declined by 12.5% so far this year.
Silver possesses all of the same monetary qualities as gold, but silver is also used for countless industrial applications. 95% of all silver produced in world history has been consumed. World silver inventories have declined from 10 billion ounces in 1940 down to only 1 billion ounces today. Meanwhile, almost all of the gold mined in world history remains in the form of bullion bars stored in vaults. The world has approximately 2 billion ounces of gold inventories today. The total value of the world's gold inventories is currently $2.656 trillion compared to the total value of the world's silver inventories of $23.68 billion. This means the value of the world's gold inventories today is worth an unbelievable 112 times more than its silver inventories.
China has been rapidly diversifying their foreign exchange reserves into gold in an attempt to position the yuan to be the world's next reserve currency. Despite China increasing its gold reserves by 76% in recent years to 1,054 metric tons, the value of China's gold reserves still only account for about 1.5% of its total foreign exchange reserves compared to the average nation of 10%. China needs to rapidly increase its gold reserves this decade, which NIA believes will send gold not just to new nominal highs, but also to new all time highs adjusted to the CPI and the real rate of inflation.
No central banks in the world currently own silver. Imagine if just one central bank of any major country announces a large silver purchase. The world is only producing 709.6 million ounces of silver per year worth a measly $16.8 billion. Total annual silver demand for industrial applications alone is 352.2 million ounces. Once you include photography, jewelry, silverware, and coins & medals, total annual silver demand is already 729.8 million ounces, which is greater than silver production. If a central bank decides to purchase silver, the market is so tight that silver prices could literally rise to $50 per ounce overnight. NIA estimates that $50 per ounce silver would mean approximately $4 billion in losses to JP Morgan.
NIA applauds CFTC Commissioner Bart Chilton for taking the time to publicly comment on Tuesday about the precious metals markets and in particular the silver markets and acknowledging that the public deserves some answers to their concerns that silver markets are being, and have been, manipulated. Mr. Chilton said in a statement, "I believe that there have been repeated attempts to influence prices in the silver markets. There have been fraudulent efforts to persuade and deviously control that price. Based on what I have been told by members of the public, and reviewed in publicly available documents, I believe violations to the Commodity Exchange Act (CEA) have taken place in silver markets and that any such violation of the law in this regard should be prosecuted."
On September 9th, after JP Morgan announced that they would be winding down their proprietary trading operations and laying off their 20 proprietary commodities traders, who NIA believes could be responsible for the current manipulation in silver, NIA released an article entitled, "Is JP Morgan's Silver Manipulation Over?". NIA said in this article that it was "hopeful but skeptical that the manipulation is coming to an end" and "We remain cautiously optimistic at this time." Since this article, it appears as though silver has been trading based on free market forces for the first time in many years. There have been no noticeable attempts to drive down the price of silver through manipulation.
Signs Hyperinflation Is Arriving
Gonzalo Lira
This post is gonna be short and sweet - and scary:
Back in late August, I argued that hyperinflation would be triggered by a run on Treasury bonds. I described how such a run might happen, and argued that if Treasuries were no longer considered safe, then commodities would become the store of value.
Such a run on commodities, I further argued, would inevitably lead to price increases and a rise in the Consumer Price Index, which would initially be interpreted by the Federal Reserve, the Federal government, as well as the commentariat, as a good thing: A sign that "the economy is recovering", a sign that "normalcy" was returning.
I argued that - far from being "a sign of recovery" - rising CPI would be the sign that things were about to get ugly.
I concluded that, like the stagflation of '79, inflation would rise to the double digits relatively quickly. However, unlike in 1980, when Paul Volcker raised interest rates severely in order to halt inflation, in today's weakened macro-economic environment, that remedy is simply not available to Ben Bernanke.
Therefore, I predicted that inflation would spiral out of control, and turn into hyperinflation of the U.S. dollar.
A lot of people claimed I was on drugs when I wrote this.
Now? Not so much.
In my initial argument, I was sure that there would come a moment when Treasury bond holders would realize that they are the New & Improved Toxic Asset - as everyone knows, there is no way the U.S. Federal government can pay the outstanding debt it has: It's simply too big.
So I assumed that, when the market collectively realized this, there would be a panic in Treasuries. This panic, of course, would lead to the spike in commodities.
However, I am no longer certain if there will ever be such a panic in Treasuries. Backstop Benny has been so adroit at propping up Treasuries and keeping their yields low, the Stealth Monetization has been so effective, the TBTF banks' arbitrage trade between the Fed's liquidity windows and Treasury bond yields has been so lucrative, and the bond market itself is so aware that Bernanke will do anything to protect and backstop Treasuries, that I no longer think that there will necessarily be such a panic.
But that doesn't mean that the second part of my thesis - commodities rising, which will trigger inflation, which will devolve into hyperinflation - will not occur.
In fact, it is occurring
The two key commodities that have been rising as of late are oil and grains, specifically wheat, corn and livestock feed. The BLS report on Producer Price Index of commodities is here.
Grains as a class have risen over 33% year-over-year. Refined oil products have risen just shy of 13%, with home heating oil rising 18% year-over-year. In other words: Food, gasoline and heating oil have risen by double digits since 2009. And the 2010-'11 winter in the northern hemisphere is approaching.
A friend of mine, SB, a commodities trader, pointed out to me that big producers are hedged against rising commodities prices. As he put it to me in a private e-mail, "We sometimes forget that the commodity markets aren't solely speculative. Most futures contracts are bought by companies who use those commodities in their products, and are thus hedging their costs to produce those products."
Very true: But SB also pointed out that, hedged or not, the lag time between agricultural commodities and the markets is about six-to-nine months, on average. So he thought that the rise in grains, which really took off in June - July, would hit the supermarket shelves in January - March.
He also pointed out that, with higher commodity costs and lower consumption, companies are going to be between the Devil and the deep blue sea. My own take is, if you can't get more customers, then you're just gonna have to charge more from the ones you got.
Coupled to these price increases is the ongoing Currency War: The U.S. - contrary to Secretary Timothy Geithner's statements - is trying to debase the dollar, so as to make U.S. exports more attractive to foreign consumers. This has created strains with China, Europe and the emerging markets.
A beggar-thy-neighbor monetary policy works for small countries getting out of a hole of their own making: It doesn't work for the world's largest single economy with the world's reserve currency, in the middle of a Global Depression.
On the contrary, it creates a backlash; the ongoing tiff over rare-earth minerals with China is just the beginning. This could easily be exacerbated by clumsy politicking, and turn into a full-on trade war.
What's so bad with a trade war, you ask? Why nothing, not a thing - if you want to pay through the nose for imported goods. If you enjoy paying 10, 20, 30% more for imported goods - then hey, let's just stick it to them China-men! They're still Commies, after all!
Furthermore, as regards the Federal Reserve policy, the upcoming Quantitative Easing 2, and the actions of its chairman, Ben Bernanke: There is an increasing sense in the financial markets that Backstop Benny and his Lollipop Gang don't have the foggiest clue about what they're doing.
Consider:
Bruce Krasting just yesterday wrote a very on-the-money précis of the trial balloons the Fed is floating, as regards to QE2: Basically, Bernanke through his WSJ mouthpiece said that the Fed was going to go for a cautious, incrementalist approach, vis-Ã -vis QE2: "A couple of hundred billion at a time". You know: "Just the tip - just to see how it feels."
But then on the other hand, also just yesterday, Tyler Durden at Zero Hedge had a justifiable freak-out over the NY Fed asking Primary Dealers for their thoughts on the size of QE2. According to Bloomberg, the NY Fed was asking the dealers how big they thought QE2 would be, and how big they thought it ought be: $250 billion? $500 billion? A trillion? A trillion every six months? (Or as Tyler pointed out, $2 trillion for 2011.)
That's like asking a bunch of junkies how much smack they want for the upcoming year - half a kilo? A full kilo? Two kilos?
What the hell you think the junkies are gonna say?
Between BK's clear reading of the tea leaves coming from the Wall Street Journal, and TD's also very clear reading of the tea leaves by way of Bloomberg, you're getting a seriously contradictory message: The Fed is going to lightly tap-tap-tap liquidity into the markets - just a little - just a few hundred billion dollars at a time - while at the same time, the Fed is saying to the Primary Dealers, "We're gonna make you guys happy-happy-happy with a righteously sized QE2!"
The contradictory messages don't pacify the financial markets - on the contrary, they make the markets simultaneously contemptuous of Bernanke and the Fed, while very frightened as to what they will ultimately do.
What happens when the financial markets don't really know what the central bank is going to do, and suspect that the central bankers themselves aren't too clear either?
Guess.
So to sum up, we have:
• Rising commodity prices, the effects of which (because of hedging) will be felt most severely in the period January - March of 2011.
• A beggar-thy-neighbor race-to-the-bottom Currency War, that might well devolve into a Trade War, which would force up prices on imported goods.
• A Federal Reserve that does not seem to know what it is doing, as regards another round of Quantitative Easing, which is making the financial markets very nervous - nervous about the Fed's ultimate responsibility, which is safeguarding the U.S. dollar.
• A U.S. economy that is weak to the point of collapse, where not even 0.25% interest rates are sparking investment and growth - and which therefore prohibits the Fed from raising interest rates, if need be.
• A U.S. fiscal deficit which is close to 10% of GDP annually, and which is therefore unsustainable - especially considering that the total U.S. fiscal debt is well over 100% of GDP.
These factors all point to one and the same thing:
An imminent currency collapse.
Therefore, I am confident in predicting the following sequence of events:
• By March of 2011, once higher commodity prices reach the marketplace, monthly CPI will be at an annualized rate of not less than 5%.
• By July of 2011, annualized CPI will be no less than 8% annualized.
• By October of 2011, annualized CPI will have crossed 10%.
• By March of 2012, annualized CPI will cross the hyperinflationary tipping point of 15%.
After that, CPI will rapidly increase, much like it did in 1980.
What the mainstream commentariat will make of all this will be really something: When CPI reaches 5% by the winter of 2011, pundits and economists and the Fed and the Obama administration will all say the same thing: "Happy days are here again! People are spending! The economy is back on track!"
However, by the late spring, early summer of 2011, people will realize what's going on - and the Federal Reserve will initially be unwilling to drastically raise interest rates so as to quell inflation.
Actually, the Fed won't be able to raise rates, at least not like Volcker did back in 1980: The U.S. economy will be too weak, and the Federal government's balance sheet will be too distressed, with it's $1.5 trillion deficit. So at first, the Fed will have to let the rising inflation rate slide, and keep trying hard to explain it away as "a sign of a recovering economy".
Once the Fed realizes that the rising CPI is not a sign of a reignited economy, but rather a sign of the collapsing dollar, they will pursue a puerile "inflation fighting" scheme of incremental interest rate hikes - much like G. William Miller, the Chairman of the Fed from January of '78 to August of '79, pursued so unsuccessfully.
2012 will be the bad year: I predict that hyperinflation's tipping point will be no later than the first quarter of 2012. From there, it will accelerate. By the end of 2012, I would not be surprised if the CPI for the year averaged 30%.
By that point, the rest of the economy - unemployment, GDP, all the rest of it - will be in the toilet. By that point, the rest of the economy will no longer matter: The collapsing dollar will make 2012 the really really bad year of our Global Depression - which is actually kind of funny.
It's funny because, as you know, I am a conservative Catholic: I of course put absolutely no stock in the ridiculous notion that "The Mayans predicted our civilization's collapse in 2012!" - that's all rubbish, as far as I'm concerned.
It's just one of those cosmic jokes that 2012 will turn out to be the year the dollar collapses, and the larger world economies go down the tubes.
As cosmic jokes go, all I've got to say is this:
Good one, God.
Forget Stocks, What Happens When the Bond Bubble Bursts?
Phoenix Capital Research
As I’ve stated in countless article before, the Fed is good at nothing but blowing bubbles. And while most commentators have focused predominately on the bubble occurring in stocks (if you compare where the S&P 500 is relative to economic data we are DEFINITELY in a bubble), a larger, more frightening bubble is currently brewing in bonds.
Since the 2008 Crash, investors worldwide have generally shunned equities in favor of the perceived safety of the bond market. Nowhere is this more apparent that in the retail investor market, where investors have pulled money from stock based mutual funds for 23 weeks in a row, while they’re on pace to pile some $300 billion into bond funds this year (on the heels of a record $350 billion in bond fund inflows from last year).
This trend in the retail investor market is largely based on fear of stocks (two bubble and subsequent Crashes in ten years will do that) and demographics (the aging boomer population, now punished by a Federal Reserve hell-bent on keeping interest rates at zero, is ravenous for income to help them move into their delayed retirement).
On the surface, this sounds pretty good. After all, stocks haven’t returned anything in ten years. In fact, adjusted for inflation, they’ve LOST money over that time. Plus bonds DO offer the appeal of definite income compared to stocks ,which often don’t pay ANY dividend or can experience large dividend cuts due to management screw ups or phony accounting coming home to roost (see financials from 2007-2009).
However, the numbers don’t lie, we are most assuredly in a bond bubble. According to data compiled by Bloomberg and the Washington-based Investment Company Institute, investors have put almost as much money into bond funds in the two years ended June 2010 ($480 billion) as they did in equity mutual funds at the height of the Tech bubble from 1999-2000 ($496 billion).
And the insanity is literally across the board
Treasuries are trading at levels not seen since the depth of the 2008 Crisis. We just had a TIPS auction close at a negative yield for the first time in history, meaning investors are willing to LOSE money just to park it with bonds that supposedly adjust for inflation (TIPS adjust based on the CPI which is nowhere near the REAL rate of inflation... see tomorrow’s essay for more on this), and US corporations have ALREADY issued $217 billion in junk bonds this year, even HIGHER than last year’s RECORD.
In plain terms, we’ve got a bond bubble of epic proportions on our hands. And if you think a stock market crash is something to behold, wait until the bond bubble bursts.
Remember, we’ve been in a bond bull market for well over 30 years. And while stocks have experienced at least three Crashes during that time (1987, 2000, and 2008), bonds have generally done nothing but go up over that period.
Because of this, there is an entire generation of professional traders/ analysts/ fund managers who have never invested during a bear market in bonds. These folks have made their entire professional careers investing with the basic understanding that debt is cheap and bonds overall move higher.
Can you imagine what kind of impact a bond market collapse (and higher interest rates) would have on these folks? Their trading programs and algorithms were created decades AFTER the last bear market in bonds ended. They are totally unprepared for this.
If you have not taken steps to prepare your portfolio for what’s to come, NOW is the time to do so BEFORE the bond bubble bursts.
Good Investing!
Graham Summers
When Lehman Brothers failed and was taken over by J.P. Morgan, they took Lehman's huge silver short position and that was all done with the TARP money. Which means the American tax payer has the biggest short position ever on our books. So be sure to work overtime this week in order to pay for it. Viva la Banking cartel!!!
Maybe something will finally get done at the CFTC, or maybe they will delay it until it blows up in their faces!!
DJIA Priced in Gold: What It Means for the Long-Term Trend
http://www.elliottwave.com/freeupdates/archives/2010/10/25/Video--DJIA-Priced-in-Gold-What-It-Means-for-the-Long-Term-Trend.aspx
DJIA Priced in Gold: What It Means for the Long-Term Trend
http://www.elliottwave.com/freeupdates/archives/2010/10/25/Video--DJIA-Priced-in-Gold-What-It-Means-for-the-Long-Term-Trend.aspx
Will the Federal Reserve Cause a Civil War?
Stephen Gandel
Bernanke critics are on the attack (Joe Raedle/Getty Images)
What is the most likely cause today of civil unrest?
Immigration. Gay Marriage. Abortion. The Results of Election Day. The Mosque at Ground Zero. Nope.
Try the Federal Reserve
November 3rd is when the Federal Reserve's next policy committee meeting ends, and if you thought this was just another boring money meeting you would be wrong. It could be the most important meeting in Fed history, maybe. The US central bank is expected to announce its next move to boost the faltering economic recovery. To say there has been considerable debate and anxiety among Fed watchers about what the central bank should do would be an understatement. Chairman Ben Bernanke has indicated in recent speeches that the central bank plans to try to drive down already low-interest rates by buying up long-term bonds. A number of people both inside the Fed and out believe this is the wrong move. But one website seems to believe that Ben's plan might actually lead to armed conflict. Last week, the blog, Zerohedge wrote, paraphrasing a top economic forecaster David Rosenberg, that it believed the Fed's plan is not only moronic, but "positions US society one step closer to civil war if not worse."
I'm not sure what "if not worse," is supposed to mean. But, with the Tea Party gaining followers, the idea of civil war over economic issues doesn't seem that far-fetched these days. And Ron Paul definitely thinks the Fed should be ended. In TIME's recent cover story on the militia movement many said these groups are powder kegs looking for a catalyst. So why not a Fed policy committee meeting. Still, I'm not convinced we are headed for Fedamageddon. That being said, the Fed's early November meeting is an important one. Here's why:
Usually, there is generally a consensus about what the Federal Reserve should do. When the economy is weak, the Fed cuts short-term interest rates to spur borrowing and economic activity. When the economy is strong and inflation is rising, it does the opposite. But nearly two years after the Fed cut short-term interest rates to basically zero, more and more economists are questioning whether the US central bank is making the right moves. The economy is still very weak and unemployment seems stubbornly stuck near 10%.
The problem is the Fed only directly sets short-term interest rates. And they are already about as close to zero as you can go. That's why Ben Bernanke has been recently talking about something called "quantitative easing." That's when the Fed basically creates money to buy the long-term bonds that it doesn't directly control, and drive down those interest rates as well. That should further reduce the cost of borrowing for large companies and homeowners. Some people are calling this "QE2" because the Fed made a similar move during the height of the financial crisis when it bought mortgage bonds.
Not everyone agrees this is a good move
In fact, a number of presidents of regional Fed banks, not all of which get to vote at Fed policy meetings, have recently come out against Bernanke's plans. Some say it sets bad policy. Others think it will stoke inflation, which might be the point. Few, though, have warned of armed conflict. Here's how Zerohedge justifies its prediction of why the Fed's Nov. 3rd meeting will lead to violence:
In a very real sense, Bernanke is throwing Granny and Grandpa down the stairs - on purpose. He is literally threatening those at the lower end of the economic strata, along with all who are retired, with starvation and death, and in a just nation where the rule of law controlled instead of being abused by the kleptocrats he would be facing charges of Seditious Conspiracy, as his policies will inevitably lead to the destruction of our republic.
OK. The idea that Bernanke might kill large swaths of low-income neighborhoods or Florida by his plan to further lower interest rates is a little ridiculous. But there is a point in Zerohedge's crazy. Lower rates do tend to favor borrowers over savers. And the largest borrowers in the country are banks, speculators and large corporations. The largest spenders in our country though tend to be individuals. Consumer spending makes up 70% of the economy. And the vast majority of consumers are on the low-end of the income scale. So I think it is a valid question to ask whether the Fed's desire to drive down interest rates at all costs policy is working. Companies are already borrowing at low rates. They are just not spending.
That being said, civil war, probably not. "It is a gross exaggeration," says Allan Meltzer, who is a top Fed historian at Carnegie Mellon. "I cannot recall ever learning about riots or civil war even when the Fed made other mistakes." When I called, David Rosenberg was traveling and couldn't talk, but he did send me a quick e-mail to stress that he has never, ever suggested that any moves the Fed makes will lead to a militia uprising.
Some smart people, though, including Meltzer, it appears, and Rosenberg do think the path of quantitative easing that the Fed looks likely to embark on is the wrong move. John Taylor, a top Fed scholar at Stanford, says eventually you will have to pull the support out, and when you do a year from now when the economy is recovering he thinks it could be quite disruptive. So even if you don't double dip now, you might double dip then. And even if you don't it would make for a slow recovery. Others, such as Raghuram Rajan, who has became famous for warning about the possibility of a financial crisis back in 2005, believe low-interest rates could be creating new bubbles in say gold or commodities.
So it seems clear what the Fed is likely to do. How the economy, the militias and the rest of us react is up in the air. The count down is on. T minus 15 days to Fedamageddon. See you there, hopefully.
The Silver Log (10.23.2010) - Technical Analysis
You should try turning on MTV. I want to cry when I see kids watching shows like Jersey Shore. Very sad to think that is how young adults are living their lives. Could you imagine if we really do have a full blown economic collapse what people like that will be doing to survive. They would riot in the streets, starve and then die, because they can't do anything for themselves...
I think we will see $20 silver in the near term!! Anything below that and I will be backing up the truck. However, looking at the charts there may have been a short term bottom met on Friday. For the next week all eyes are on the Fed and their QE2 that will be announced on Nov. 3rd. Anything above $750 Billion and metals will hit new highs!!
The Truth Behind the Chinese Rare Earths Embargo
By Addison Wiggin
10/20/10 Baltimore, Maryland – “It makes logical sense: Whenever you have a shortage of raw materials in the world, it historically has led to war.” So said investment biker and Vancouver veteran Jim Rogers during a recent address to the Mises Institute in Alabama.
A couple of generations ago, Japan attacked Pearl Harbor within months of a US oil embargo. Monday, China embargoed exports of rare earth elements to the United States.
Rare earths, in case you need a refresher, are a class of 17 elements used in everything from mobile phones, to hybrid car batteries, to flat-screen TVs, to guided missile systems, to wind turbines.
If it involves cutting-edge modern technology, chances are it requires rare earths.
So what’s the rub? Right now, China controls 93-97% of the world supply, depending on the source you choose to cite at your next cocktail party.
Still, the Chinese decision to stop exports to the US marks one of the strangest export bans in recent history.
When Russia banned grain exports in August, Prime Minister Vladimir Putin made the announcement himself and outed his fear that Russians would starve. But when China banned the export of rare earths to the United States, a New York Times reporter had to suss it out through “three rare earth industry officials, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities.”
There’s no indication how long the embargo may last, and a fourth industry official says it appears a stray shipment or two is still being allowed to go through.
It puts officials in Washington in an odd position: “We’ve seen the news report,” says a spokeswoman for the Office of the US Trade Representative, “and are seeking more information.”
On this front, they’re bereft of their usual posturing and indignant outrage. As if they just didn’t see this one coming… Hmmmn…
When China cut off rare earth exports to Japan last month, the motive was pretty obvious: Japan captured a Chinese fishing boat in waters claimed by both countries. But what gives with the stealth embargo to the US?
Of course, there’s headline-grabbing tension between policy wonks in Washington and party apparatchiks in Beijing over the value of the renminbi (CNY)… which has, in turn, played host to a series minor trade disputes: The US government has imposed duties on Chinese tires. Chinese officials have imposed duties on US chicken. Yada, yada… Bureaucrats squabbling: what else do they fill their time with?
As we were looking under the hood, we found a motive with a little more oomph behind it.
Last Friday, the Office of the US Trade Representative announced it was launching an investigation into Chinese subsidies of green energy. The United Steelworkers have been raising a ruckus about this so, of course, given the election cycle, there’s more than one beltway resident willing to go to bat for them.
The union claims the Chinese have adopted “policies that protect and unfairly support its domestic producers of wind and solar energy products, advanced batteries and energy-efficient vehicles…as China seeks to become the dominant global supplier of these products.”
What goes into wind turbines? Rare earths. What goes into advanced batteries and energy-efficient vehicles? Rare earths.
Suddenly, it all starts to make sense. Then again, the US investigation may have simply handed Beijing a pretext for doing something it planned all along.
“China does have 97% of rare earths,” Jim Rogers explains, “and China’s booming. So China’s cutting back on the exports of rare earths, which I guess anybody would do if they were booming and they could see there was limited supply.”
“Since 2006,” explains The Economist, “China has behaved in a way that resembles OPEC, the oil-producers’ cartel, cutting exports by 5-10% a year. In July the export quota was cut by 40%. Prices have soared.” And they’ve soared at the very time demand is soaring, too: “Demand is forecast to increase by around two-thirds over the next five years.”
“If you could figure out a viable way to invest in rare earths,” Jim Rogers concludes, “you will probably make a fortune.”
So who are the winners and losers from all this? Reuters is out this morning with a handy list. The losers include the manufacturers who rely on rare earths. In the US, those are primarily makers of catalytic converters, along with the metal-alloying and ceramic-making sectors.
The winners are the miners of rare earths…and they do exist outside China’s closed system. In fact, 65% of world reserves lie outside China. They just haven’t been developed yet. The United States, Canada and Australia all have deposits that tiny mining firms are scrambling to bring into production.
Addison Wiggin
for The Daily Reckoning
It looks like it has had one hell of a summer!! I will have to check it out...
Anything around $20 is a good price from here on out!!!
Watching a Slow Motion Train Wreck...
http://silverbearcafe.com/private/10.10/trainwreck.html
This is for those who are big silver bulls:
Silver - Reflections of a Major Price Breakout
http://silverbearcafe.com/private/10.10/reflections.html
Silver - Reflections of a Major Price Breakout
http://silverbearcafe.com/private/10.10/reflections.html
And here is one more big kick in the pants of the housing market. I'm sure you are up to date on "foreclosure-gate" but this is what millions of homeowners may be doing in the near term:
Here’s What You Can Do:
FD has made the appropriate modifications to the original SEIU system generated letter to reflect the following. This letter should be sent to your mortgage servicing company. Since these are the people to whom you are writing a check every month, they bare the burden to prove that they are entitled to those payments.
The following is a mortgage note and mortgage servicing agreement sample letter. You may need to make modifications to suit your specific needs.
To whom it may concern:
I own the property at the address listed above, and your bank services my mortgage.
Over the last several weeks there have been many stories documenting the problem that banks are foreclosing on homes without proof that they own the loan. I have learned that in many cases, banks like yours do not even know who owns the loans you service. Employees at several leading banks have admitted to rubber stamping tens of thousands of foreclosures every month, without even checking to make sure that the bank had a legal right to proceed with foreclosure. In some cases, banks allegedly falsified mortgage documents to cover up their mistakes. There have been reports of two banks trying to foreclose on the same home, banks foreclosing on homeowners who were current on their payments, and even of a bank foreclosing on a home where the homeowner had never taken out a mortgage to begin with. This is not merely a “technical problem”–it is the difference between having a warm bed at night and being out on the street.
As a homeowner and a customer of your bank, I am horrified. I had always believed that it I played by the rules, I would be protected, but now I know that banks like yours think the rules don’t apply to them.
To protect myself and my family, I need to know who owns my mortgage. Within thirty days, I would like to know the name, address, and phone number of the bank or investor that owns my mortgage. Furthermore, in light of the recent allegations of foreclosure fraud, I demand to see the original mortgage note proving ownership over my home loan. I would like to see copies of all endorsements and assignments of my mortgage note and where and when the assingment(s) _if any – were recorded. I also ask that you provide me with evidence of your firm being contractually retained to service my loan.
If you fail to provide the information I am legally entitled to, I will be forced to consider all options available to me to ensure that my family and my home are protected.
I ask that I receive my response in writing.
Thank you for your attention to this matter.
Sending the above letter to your mortgage service company is the first step in the process. They are legally obligated to respond to your request.
*Important Note*: Send this letter utilizing the Certified Mail Return Receipt service through the U.S. Post Office. It will cost you approximately $5 for postage and added services, but it will ensure a paper record of your request and the bank cannot deny that they received it. Within a few days of their receipt of your letter, you will receive a green form with the date it was delivered and a signature from the person who signed for it at the bank. Keep this for your records. Failure to send with CMRR service could lead to complications if the bank denies that you sent the request.
What do I do after 30 days?
The thirty day window begins on the day the bank signs for the letter you sent via Certified Mail. Once this time period expires, you should have received a copy of all requested documentation.
If you have not received the documentation requested, or it is incomplete, or it does not prove assignment of your mortgage loan to the service company, or it does not include a copy of your title, you will need to take legal action against the bank.
This will require that you obtain an attorney. Most attorneys can be retained for less than the cost of your monthly mortgage, so this may be a cost-effective avenue to take for many of our readers. Essentially, if the mortgage service company/bank fails to deliver the requested documentation, this becomes a paper shuffle through the court system.
If all goes well, you may end up with a free house, or, at the very least, a deferment on your monthly mortgage payments (interest free) until everything is worked out with respect to paperwork. With the speed and efficiency of our current mortgage system, you may end up without having to make payments for months before everything is all said and done.
Give ‘Em Hell
We often discuss how regular Americans can take action against the banks that were complicit in the meltdown of our financial system. These very same banks are still acting with only their self interest in minds. They’ve been bailed out with billions of taxpayer dollars, yet refuse to take any meaningful steps to assist working Americans on the street. They would rather foreclose on your home than provide any assistance to modify a loan.
If you want to “take it to the banks” this is one way to start. Another way is to move your money to a local or regional bank not affiliated with the global financial cartels.
Large banks thrive on taking advantage of the small guy. They do this in various ways which include, but are not limited to:
charging high interest rates by establishing businesses in states without strong consumer protection laws
reordering transactions and charging $35 NSF charges (essentially 1000% plus loans on overage charges) [though this has recently been remedied by law -- It took an Act of Congress to make banks act ethically!]
Creating money out of thin air via the fractional reserve lending system, which leverages the future of all Americans - with the profits going to banks and losses burdening the taxpayer
Today, you have the ability to take the fight to the banks. If you own a home, don’t delay. Send a verification request to them now.
It's the greatest depression that any of us will over witness!! We are only in the second inning and just warming up.
October 14, 2010
America's Currency Crisis is Now Underway
According to minutes that were just released this week from the Federal Reserve's meeting on September 21st, the Federal Reserve is now trying to figure out ways to boost inflation expectations. The mainstream media is reporting that the Federal Reserve wants to publicly declare their intention to seek a higher inflation rate so that Americans are encouraged to spend more before their money is worth less. Unfortunately, what the mainstream media fails to realize is, not only will their money soon be worth less but it will literally become worthless.
If the Federal Reserve doesn't immediately raise interest rates dramatically, there is serious risk of the current "meltup" turning into hyperinflation before the end of 2012. The Federal Reserve's words can no longer control the present situation. They are saying they want inflation so that when massive inflation does arrive, it appears as though they still have control. With gold up 19% and silver up 38% since NIA's July 28th article "Gold and Silver Capitulation is Near" in which we said, "the big move to the upside (for gold and silver) is right around the corner", it is obvious that the Federal Reserve has completely lost control of inflation and a major currency crisis is already underway.
The world is flooded with excess liquidity of U.S. dollars. Up until now, Americans have been blessed by the fact that the world has been hoarding these dollars, believing they are a safe haven during these uncertain economic times. The world's confidence in the U.S. dollar and strong demand for U.S. treasuries despite the need for the Federal Reserve to monetize our $13.6 trillion national debt will one day be looked back at as the most mysterious paradox of our generation.
The average American today is pouring money into U.S. treasuries. They got crushed when the dot-com bubble collapsed, they got decimated when the Real Estate bubble burst, and now they are loading into dollar-denominated assets. Simultaneously, the Federal Reserve is trying to destroy the purchasing power of the U.S. dollar. The only thing the Federal Reserve should be focused on today is preventing hyperinflation, because hyperinflation always leads to complete societal collapses.
Almost all American investment advisors tell their clients today that government bonds are the "safest investments there are" because they "are backed by the full faith and credit of the government". It is very common for investment advisors to recommend to their clients that they put 25% or more of their assets into U.S. government bonds and keep another 25% of their assets in U.S. dollar cash. Yet, there are almost no investment advisors in existence who recommend to their clients that they put more than 5% of their assets into gold.
Investors who only put 5% of their assets into gold might find that they only retain 5% of their purchasing power in the future. Neither NIA nor its co-founders are investment advisors, but our commentary has consistently highlighted our beliefs that there is no such thing as owning too much gold. NIA believes that individual investors' portfolios should be 100% in assets that will retain or increase in purchasing power during hyperinflation. The only question today that smart investors should be asking themselves is what percentages do I put into physical gold, physical silver, mining stocks, agricultural commodities, etc.
Obama continues to state he will not raise taxes for those earning less than $200,000, yet he is doing absolutely nothing to reduce government spending. With China and Japan getting ready to pull the plug on the U.S. dollar, future U.S. deficit spending will have to be paid for by outright money printing. The price inflation that is ahead as a result of monetary inflation is the absolute worst thing that can happen to middle class Americans. Obama's inflation won't hurt the wealthy as much because the wealthy, if they become educated and act quick enough, can still preserve the purchasing power of their wealth by buying gold and silver.
Obama's plan to reduce our budget deficit from $1.6 trillion today down to $752 billion in 2015 is contingent on 5.58% annual GDP growth and interest rates on our public debt of only 4.1%. The only way we will see 5.58% annual GDP growth is with massive inflation and when inflation spirals out of control, so will interest rates. There is no doubt that our nation's budget deficit come 2015 will be substantially higher than it is today, if our nation survives until then.
You're right, but this time some of it will come my way!!