goldmap

Presidential order - 1/26/11

 

"[W]hile the US creates billions (trillions) of dollars out of computer transactions, all in an effort to save its banking system, China is spending part of its giant dollar hoard to buy up the resources of the earth...All this is happening while the US debates the suitability of gays in the armed forces."  - Richard Russell, 1/18/11

  

 

Dear All,

  

The absolute number of U.S. housing starts is the lowest since 1959.  Consider however that the U.S. population in 1959 was 176 million vs. today's 311 million and housing starts relative to population tells a far more troubling story.  YahooFinance: 2009 and 2010 U.S. Housing Starts worst in half century

 

 

Lexapro Alert:  Here is a list of the new taxes being imposed under Obamacare.  It is interesting that during the debate over exempting the top incomes from extension of the Bush tax cuts, there was little mention that Congress under Obamacare had already passed a 3.8% "surcharge" on investment income (dividends, interest, capital gains, rents and royalties) above $250,000 for families ($200,000 for single filers) starting in 2013: Comprehensive list of tax hikes under Obamacare

 

 

Hugh Hendry on the Euro:  "It reminds me of the story of the James Bond character Q...who invented a compass for spies hidden in a button that unscrewed clockwise. The contraption was based on the simple yet brilliant theory that the unswerving logic of the German mind would never guess that something might unscrew the wrong way. This is really what happened with the euro. New member states were supposed to take lower German interest rates and invest their resources wisely to improve and deepen their productive capacity. Instead, they used the advantage to finance speculative asset bubbles. The peripheral nations of Europe turned the wrong way. The Germans are unhappy."  FT.com: Hugh Hendry 

 

 

Dear Coupon clipper, 

You're screwed.

Sincerely,  

FILL IN STATE...

 

Municipals bonds had been considered a conservative and reliable way to retire with tax free income.  Investing in gold continues to be viewed as "speculative."  Its funny how things turn out.  Holders of  U.S. Treasuries will learn some hard lessons as well when hit with the double whammy of rising interest rates and default through debasement. NYTimes: States seek path to declare bankruptcy

 

 

When accountants turn to prostitution it is not a victimless crime.  The Federal Accounting Standards Board is owned by the banking and political establishment.  The FASB is an affront to the integrity of the hard working, honest men and women that comprise the prostitution profession. WSJournal: Banks Have Their Way With FASB

 

 

Chris Martenson examines a recurring theme discussed here and drills down to the methodology by which the Bureau of Labor Statistics creates the propaganda that is the Consumer Price Index:   "According to the BLS, the average family is projected to have a total exposure to rising health insurance premiums at a rate of only 0.49% (out of 100%). Given a median family income of $49,077 (the 2009 value), this means that the BLS assumes that the average family contributes just $239 dollars per year towards their healthcare insurance premiums. Yes, I wrote per year, not per month. That's not a typo... Worse, and compounding this error of weighting, the BLS has somehow calculated that the cost of health insurance has been steadily falling for the past three years"   Chris Martenson: Inflation Is So Much Worse Than We're Told.

 

 

The trend...

 

WSJournal: Russia Plans to Buy 100 Tons of Gold a Year

 

 

On August 7, 1964 Congress passed the Tonkin Gulf Resolution, giving President Lyndon Johnson the authority to use conventional military forces in Vietnam.  A well connected reader forwarded this recording of Johnson giving an order on August 9th -- only two days following the passage of the Resolution.  The conflict which he was about to escalate and which would ultimately lead to the loss of 47,000 American lives was obviously very much on the president's mind.  Johnson's tone and resolve as the order is given are striking as are the details with which he concerns himself:  WhiteHousetapes: President Johnson 8/9/64  

 

Why do I suspect that nothing has changed in the 46 years since?

 

 

Regarding gold and silver...

 

This is what the elitists are cooking up.  They have no solution to the debt collapse other than to create more debt.  It ensures a sharply higher gold price.  World Economic Forum: Over US $100 Trillion Additional Credit Needed to Support Global Growth

 

The majority of Chinese have been prohibited from purchasing gold during their lifetimes. This changed three months ago when the government officially legalized the purchase of gold.  Although it is the world's largest gold producer China cannot keep up with domestic demand and is now permitting gold importation. On top of the multitude of factors comprising the perfect storm that will force a major upward re-pricing of gold, we now have the world's most populous country with its swelling middle class being permitted and encouraged for the first time to purchase gold. China has the highest savings rate in the world, a formidable inflation problem and a population that is culturally disposed toward gold.   

 

Then there is the matter of the Chinese demand for silver: Chinese silver demand surges incredible four fold in just one year

 

 

I received this email on Monday: "[S]hould I be panicking about my gold stocks?"   That is entirely the writer's choice of course but as I pointed out to her, corrections in bull markets are supposed to occur. Perspective is critical.  You'll find it much easier to deal with corrections by reviewing the long term charts -- both of this bull market and ones of the past and viewing the frequency and depth of price retracements within them. 

 

While the paper prices get the headlines, pay attention to the physical markets -- they are very tight.  Embrace negative gold articles in the press -- they are a bullish contrary indicator.  I have found that the "experts" with negative opinions that are quoted in the press generally fall into one of two categories: 1) People I've never heard of who were nowhere to be found providing bullish forecasts hitherto -- certainly not in the early years of the bull market, or 2) People who have been wrong and consistently bearish on gold for many years. It is an arithmetic necessity that the majority has negative sentiment toward gold in order for there to be significant upside. What would be concerning would be a preponderance of business magazine cover stories singing the praises of precious metals.    

 

These bull market corrections are opportunities used by professionals to shake out weak hands and acquire their metal and shares. The fundamentals for gold and silver are superb -- the fundamentals for the U.S. dollar are a disaster.  The financial debacle is a slow-motion collapse that is protracted only due to continued massive liquidity injections, the consequences of which will be a lower dollar, inflation and dramatically higher gold and silver prices.    You earn your money in a bull market by sweating out corrections. 

  

My best,

 

Jeff

'No middle ground' - 1/15/11

 

"Roughly speaking, the mess we are in is the worst since the 17th century financial collapse. Comparisons with the 1930’s are ludicrous. We’ve gone far beyond that. And, alas, the courage & political will to recognize the mess & act wisely to reverse gears, is absent in U.S. leadership, where the problems were hatched & where the rot is by far the deepest."  -- Harry Schultz, in the final issue of his superb 'IHSL' which is ceasing publication after 45 years.

 

Dear All,

The recognition, as the 87 year old Harry Schultz observes -- that what we are in the midst of is not some garden variety cyclical downturn, is critical to properly approaching the allocation of capital for the next number of years and surviving the great debasement.  It is perhaps not an overstatement to say that the greatest impediment to allocating your capital wisely may be your stockbroker or investment adviser.  It is doubtful that she is any more capable of comprehending the significance of the structural economic dysfunction that exists than is anyone else in your life.  Wall Streeters may understand investment cycles but they are entirely unprepared for the degree of upheaval that if Harry is correct, is the worst in at least three centuries.  They carry the wrong playbook. You will likely be better served by searching Youtube or the likes of ted.com to access lectures by competent economic historians such as Niall Ferguson, who was featured in the January 6th post. 

 

J.P.Morgan Chase reported "better than expected" earnings on Friday.  The fact that the bank is the largest financial cesspool in history with $77.7 trillion in notional derivative value on its books (against $176 billion in shareholder equity -- a ratio of 441:1) that renders the company an insolvent zombie seems not to matter to most analysts -- and why should it?  JPM has Too-Big-to-Care status.  The Federal Reserve will backstop JPM's negative capital in perpetuity courtesy of US dollar holders.  For JPMorgan Chase is no longer a privately functioning enterprise but rather a government entity masquerading as such. Since the financial crisis commenced the needle has barely budged on the exposure that JPM assigns to itself from its toxic derivative book, despite the fact that the financial world which it insures through that book has largely collapsed. Were JPM to increase its stated exposure by just one quarter of one percent of its derivative book's notional value it would more than wipe out the entirety of its shareholders' equity.  Not to worry, not to care -- JPM's investment bankers are to receive an average payout of $369,651 for 2010 and the company said it is hoarding enough operating capital to soon increase its dividend.  The U.S. Federal Reserve has effectively announced that JPM's balance sheet has no material relevance. Whatever is bad the Fed will eat -- whatever operating cash JPM can generate is free for the taking.

The spin that there is an economic recovery is complete fiction.  Only Wall Street, which was backstopped and/or flooded with federal bailout funds that ensured the perpetuation of its obscene compensation machine, has experienced anything resembling a recovery.

 

Does this chart appear reflective of an improving economy to you? 

 

 

60 percent of Americans do not have any excess funds on hand to meet emergencies, and 40 percent of credit card holders say they are paying  only the minimum required payments on their credit cards.   New consumer survey: More than half of all Americans living paycheck to paycheck

 

This is a trend in the U.S. that is as disturbing as any.  History is unkind to gaping socio-economic schisms.  Without a formidable middle-class everything is up for grabs and the arithmetic does not favor the 'haves.'  TheTelegraph: Deepening crisis traps America's have-nots

 

While you were sleeping...A decade ago the Canadian dollar was worth as little as 65 US cents.  Today a Canadian dollar will cost you about $1.01.  The 'Loonie' as it is known is now trading at a slight premium to the U.S. dollar. Capital -- always agnostic, flows to where it feels safest and where it is best treated.  The resource based Canadian economy is far healthier than that of the U.S. and its stock market has been strongly outperforming the U.S. equity markets.  It's government's fiscal policies are by comparison -- conservative with lower corporate tax rates than in the U.S.  Canada's banking sector is the strongest in the world and its unemployment rate is one third lower than U.S.'  According to the Heritage Foundation, Canada ranks higher now in economic freedom than the United States.   Heritage Foundation: Index of Economic Freedom   

 

As discussed here in the Oct 22nd posting "Derivative Nation"  this is huge and will not be swept under the rug. A showdown is coming and the ramifications -- however it is decided -- are not pretty.  Reuters: Banks lose key foreclosure ruling in top Massachusetts court

 

Goldman Sachs is the largest insider trading operation in history.  Only little people and female celebrities with cooking shows are prosecuted for insider trading.    NYPost: John Crudele - NY Fed's 'Mr. Inside' Dudley flapping his gums"

 

It is an uncomfortable fact that sovereign nations that discharge their debts are historical rarities. The norm is that notes are refinanced until eventually there is default through currency debasement.    "Despite the recent drama, we believe we have only seen the opening and second act...There is no absolutely safe sovereigns"   TheTelegraph: Debt default fears will spread to US and Japan, warns Citigroup's Willem Buiter

  

The trend:

EconomicTimes: India, Iran mull over gold-for-oil now

 

Worth the read... 

AlterNet: WikiLeaks' Most Terrifying Revelation -- Just How Much Our Government Lies to Us

Charles Hugh Smith: the U.S.O.F.C. -- If the Fraud Stops, the Financial System Collapses

 

Amy Chau provides a fascinating and blunt assesment of the striking cultural differences in parenting.  One culture emphasizes achievement -- viewing self-esteem as its product.  The other views self-esteem as the goal as well as predicate to achievement (the latter cultural platitude implying that taken to the extreme -- a nation of failures that feels good about itself is a success).  WSJournal: Amy Chau - Why Chinese Mothers Are Superior

 

This is the best commentary I've read on the Arizona shooting and the shameful exploitation of the tragedy by media pundits and politicians. Giordano Bruno: The Giffords Shooting Changes Nothing 

 

Regarding gold and silver...

 

Kudos to GATA and its esteemed constitutional lawyer, William J. Olson: Judge orders Fed to deliver gold records for her review

 

While the Indian appetite for gold and silver will continue as a strong driver of precious metal demand (Bloomberg/Businessweek: 2010 Gold Imports by India Likely Reached Record) it is China that is the game changer.  Although it is the world's largest gold producer, China in October began allowing gold importation.  It cannot keep up with its own demand as it encourages internal consumption. I cannot overemphasize how important a factor this will prove to be in driving the price to much higher levels.  MyIris/India:  Gold Council and ICBC launch first gold accumulation plan in China

 

Ultimately it will be the physical market that prevails:  "Frankly, we are concerned about the illiquidity in the physical silver market," said Eric Sprott, Chief Investment Officer of Sprott Asset Management. "We believe the delays involved in the delivery of physical silver to the Trust highlight the disconnect that exists between the paper and physical markets for silver."  TORONTO, Jan. 10 /CNW/ - Sprott Physical Silver Trust (NYSE ARCA: PSLV, TSX: PHS.U) Asset updates on the delivery status of silver bullion purchased  

Sprott's physical gold and silver trusts put the emphasis on the "physical" through rigorous custodial and auditing procedures.  At the Dahlman Rose Mining conference which I attended here in New York last week, Sprott Asset Management's David Franklin reiterated Eric Sprott's comments as to the continuing difficulty in acquiring silver bars for their trust.   Without making the direct accusation, it was quite clear that he does not believe the ishares Silver Trust ETF (SLV) inflow reports of what are assumed by many to be physical silver into that much larger entity. Saying that he'd love someone to tell him whom to call to obtain some, Franklin wondered aloud precisely how it is that the considerably larger but custodially challenged SLV is able to do so. The circumstantial evidence continues to point to SLV having large paper derivative silver positions rather than what many of its misinformed investors undoubtedly believe is real silver.  The same holds true of GLD and other precious metal ETF's which investors believe are fully backed by physical metal.

 

Use your own power of observation and keep your emotions on ice. Do not allow the short term market movements to distract you from the big picture.  Above all, shun conventional investment advice.

"[T]he world has entered another period of upheaval in which the independent thinkers -- the searchers, skeptics and non-conformists -- become fabulously wealthy, while the herd becomes the government's lunch; there is no middle ground."-- Richard Maybury, U.S. & World Early Warning Report, Jan 2011

All the best,

Jeff

'Just another fiat currency' - 1/6/11

 

"The Americans will always do the right thing...after they've exhausted all the alternatives." -- Winston Churchill

  

Dear All,

You wouldn't know from the talking financial heads, the stock market price action and the phony headline economic numbers that things have never been worse.  Here is where rubber is actually meeting the road: 

Gonzalo Lira: The Federal Reserve is purchasing over 60% of the Federal government deficit

Jan 5, 2011: U.S. Census Bureau Reports State Govt. Revenues Decline Nearly 31 Percent 

NYTimes: Pension Fund Losses Hit States Hard, Data Show

The state, municipal and local govt. crisis we've discussed here for the past two years is reaching the breaking point.  Churchill's quote at the top of this piece is referenced in Niall Ferguson's superb lecture linked herein.  By Churchill's observation, the "right thing" is the point not at which the long sought judicious course is finally revealed, but rather the point at which having doggedly avoided it, there are no other paths remaining.  So it is with governments.  They have been dancing around the problem for years and the music has stopped.

One of the few analysts who both see reality and call a spade a spade:  BusinessInsider: Meredith Whitney Getting Trashed Eight Ways To Sunday

 

Another of the very few analysts worth paying attention to, Howard Davidowitz discusses the debacle that is unfolding in retail real estate.  Bloomberg: Davidowitz - "It's going to be the biggest retail change that we've ever seen."

 

Spot on: Lila York: 'The U.S. Stock Market is Rigged.'

 

In my last post I referred to US Treasuries as being a high risk/minimal reward proposition.  Marc Faber is probably closer to the truth on this. Bloomberg: Faber Says Long -Term U.S. Treasuries  'Suicidal'

 

This is a back-door bailout and nothing less.  What the Times story fails to mention is that Bank of America is being released of any liability on potential future claims relating to $127 billion in Countrywide loans.  BOA is effectively settling for one cent on the dollar. Once again, the working people are bailing out bankers.  BOA is simply incapable of absorbing the losses it is liable for. It is again being propped up and will continue to be through third party conduits such as the GSE's.  They dare not call it a bailout though and the New York Times dare not report it as such.  NYTimes: Bank of America Settles Fannie Mae and Freddie Mac Claims 

 

Commenting on last week's decision by the People's Bank of China to raise interest rates 25 basis points, Yra Harris found the economic impact irrelevant but took note of the Chinese having flipped the west the bird:

"[T]he Chinese raised rates on Christmas so as to let the world know that the rules of the game are changing. The Asian economies have THROWN OFF THE YOKE OF ITS COLONIAL PAST AND COULD CARE LESS ABOUT THE NICETIES OF THE JUDEO-CHRISTIAN WORLD. The rate move was well-timed in that regard and the global powers should prepare for many more sea changes in long-held customs...Would the FED refrain from raising rates during the CHINESE NEW YEAR?"

  

The Baby Boom generation is now of retirement age.  With unemployment exceeding 20% (the actual figure - not the official) and median retirement savings of $2,000., the middle class is going belly up. Social security is all they will have and with the retirement age sure to be lifted plus inflation roaring in the coming years, it will push many into poverty. With the phony CPI, the federal government is already depriving recipients of deserved cost of living adjustments.  Social security payments in real terms are going to fall drastically.  MyBudget360: 1 out of 3 Americans has zero dollars in a retirement account 

 

I draw your attention to this lecture by economic historian Niall Ferguson, made available through the Australian Broadcasting Corporation. Skip the introduction. The lecture and follow-up Q & A will be an hour of your time well spent.  I note Ferguson's underestimation of where gold is headed.  Do not hold that against him -- his review of history is first-rate, made all the more enjoyable by his dry wit.  "When all of your ordinary revenues are going on interest payments -- it is ladies and gentlemen, game over."   Niall  Ferguson: Empires on the Edge of Chaos 

 

Here's an example of how America's schools have failed us. Ezra Klein, 26 is a columnist for the Washington Post, Newsweek, and a contributor to MSNBC.   Although he sought to make a different point, Ezra said the following in this television interview: "[The U.S. Constitution] has no binding power on anything ...the issue with the Constitution is the text is confusing because it was written more than 100 years ago."  

Now Ezra, the U.S. Constitution was written in 1787 and ratified two years later so it's older than you think.  It is the legal infrastructure of our nation and the controlling document of all U.S. law.  "No binding power"...Whatever are you talking about?  Ezra's confusion might be somewhat mitigated had he taken what today passes for a basic high school civics course.  Ezra serves as well as a glaring example of the deterioration of standards in establishment print and broadcast media.  Breitbart.com: Washington Post staffer says U.S. Constitution 'has no binding power on anything' 

 

The trend...

 

Chile's central bank plans to buy $12 billion of U.S. dollars to help exporters by weakening the peso

 

Yahoo!: World Bank taps offshore Yuan bond market for first time

 

Reuters: Global food price index hits record high

 

TheTelegraph: Brazil pledges to stop US 'melting the dollar'

 

 

Contrarian Film Review of 2010:  'The Fighter'   Actually, the Rocky horror show.  It has made almost every reviewer's "10 best" list, largely I suspect due to its being based on a true story -- which apparently creates the illusion of making soporific cinema more compelling.  Boxing and drug addiction are served up in an economically depressed New England mill town (Think Real Housewives of Lowell, MA) but in both genres there are far better.  So what distinguishes this unexceptional film?  There is oppressive swearing, smoking, beer drinking, 80's big hair and familiar working-class Irish shtick.  If spending two hours observing white trash in its milieu is your idea of entertainment, may I recommend the following: The Cleveland Zoo -- animals in their natural habitat as a more interesting alternative.

 

 

 

Adrian Douglas' piece examines moronic comments made about gold by inexplicably well regarded investment professionals (Charles Munger is the exception -- his acumen is legendary. His gold comments however remain rather moronic).  The quotes contained therein are really the same fallacious cliche's that are repeated regularly in the investment world.  Adrian Douglas: Stupidity revealed 

 

I have two additional items to contribute to Adrian's cause.  First there is this quote which was included in a year-end round-up of 2010 commodity price movements that appeared in Monday's edition of the Wall Street Journal.  James Steel, a precious-metals analyst at HSBC Bank USA, has apparently learned about an economic theory known as "the law of supply and demand" and seeks to enlighten and impress us with his discovery and absorption of this concept as it applies to the movement in the gold price -- to wit,  "This is the first time for many years that investors have been as influential as they have. Without the increased investor demand, it wouldn't take the market to these levels."

  

Then there is this gem...Sanford C. Bernstein, which promotes itself thusly -- "Wall Street’s premier sell-side research firm - Our research is sought out by leading investment managers around the world"  has put out a report bashing gold. Its author however committed a bit of a faux pas.  It seems he neglected to engage in the most rudimentary research (i.e. the type sought after by Bernstein's clients) prior to commencing his endeavor.   At the report's opening the author writes, "Gold, which is effectively just another fiat currency, has recently benefited from its perceived ability to hedge against a variety of potential economic outcomes that are currently foremost in investor's minds: inflation, sources of economic growth, downward spiral in fiat currencies, etc."

  

What are we to make of a fellow who is about to pontificate -- in no fewer than sixteen pages -- on the historical and future role of the monetary metal and does not know the definition of  "fiat currency?" It is the equivalent of a sports writer attempting to cover a tennis match without knowing what a "net" is.  A simple trip to Investopedia might have helped the author.  He was apparently preoccupied copying and pasting colorful charts into his research report.

       

What Does Fiat Money Mean?

Currency that a government has declared to be legal tender, despite the fact that it has     

no intrinsic value and is not backed by reserves. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith. 

 

Source: Investopedia

 

For the record, Sanford Bernstein's "research" was nowhere to be found when gold and silver were being given away at their bear market bottoms earlier in the decade.  You can view the aformentioned and sought after research product here:  Bernstein Research - Equity Portfolio Strategy

  

As long as this type of inscience prevails the bull market is firmly intact.  As investors become more enlightened about precious metals the opportunity will ebb.   

 

Gold and silver...

 

From Sprott's John Embry yesterday, speaking to Eric King on the physical silver market:  "As you know we started the Sprott Physical Silver Trust about 3 months ago.  We still haven't got all of our silver in yet, we're close, we've almost got every last bar.  But it’s taken the better part of 2 1/2 months to get it in, so the suggestion that this physical market is tight probably isn't a strong enough suggestion, it’s really tight!"

  

Speaking on the subject of the inevitability of a still markedly lower priced dollar relative to gold, 'Trader Dan'  -- as Dan Norcini is referred to over at the terrific JSMineset, expresses precisely my own sentiment on the take-down (yawn) in precious metals this week -- which is merely background noise in the powerful secular bull market that has years to run:

 

"[T]he only way this obscene burden is going to be eliminated from the shoulders of our children and grandchildren is by effectively defaulting through currency devaluation. We all know that; so does every other major holder of US Treasury debt on the planet. That is why I do not particularly care what happens to gold during these fairly regular bouts of selling. It runs higher; falls back, runs higher, falls back and just keeps repeating the process over and over again as it moves inexorably higher."

 

My very best,

 

Jeff