SaveYourSavings

Who Stole Your World? Part 2

2009-04-07T16:11:00.001-07:00

Who Stole You World? -Part 1

2009-04-07T16:09:00.000-07:00

Why is Government GPSing Your Home?

2009-04-03T14:33:00.000-07:00

Schiff Video, Fed Prints Trillion in Funny Money

2009-03-19T10:23:00.000-07:00

Bernie Madeoff with the Cookies What a Monster

2009-03-15T16:39:00.000-07:00

Obama's 55 and die plan

2009-02-10T11:31:00.000-08:00

Ruin Your Health With the Obama Stimulus Plan: Betsy McCaughey

Commentary by Betsy McCaughey

Feb. 9 (Bloomberg) -- Republican Senators are questioning whether President Barack Obama’s stimulus bill contains the right mix of tax breaks and cash infusions to jump-start the economy.

Tragically, no one from either party is objecting to the health provisions slipped in without discussion. These provisions reflect the handiwork of Tom Daschle, until recently the nominee to head the Health and Human Services Department.

Senators should read these provisions and vote against them because they are dangerous to your health. (Page numbers refer to H.R. 1 EH, pdf version).

The bill’s health rules will affect “every individual in the United States” (445, 454, 479). Your medical treatments will be tracked electronically by a federal system. Having electronic medical records at your fingertips, easily transferred to a hospital, is beneficial. It will help avoid duplicate tests and errors.

But the bill goes further. One new bureaucracy, the National Coordinator of Health Information Technology, will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. The goal is to reduce costs and “guide” your doctor’s decisions (442, 446). These provisions in the stimulus bill are virtually identical to what Daschle prescribed in his 2008 book, “Critical: What We Can Do About the Health-Care Crisis.” According to Daschle, doctors have to give up autonomy and “learn to operate less like solo practitioners.”

Keeping doctors informed of the newest medical findings is important, but enforcing uniformity goes too far.

New Penalties

Hospitals and doctors that are not “meaningful users” of the new system will face penalties. “Meaningful user” isn’t defined in the bill. That will be left to the HHS secretary, who will be empowered to impose “more stringent measures of meaningful use over time” (511, 518, 540-541)

What penalties will deter your doctor from going beyond the electronically delivered protocols when your condition is atypical or you need an experimental treatment? The vagueness is intentional. In his book, Daschle proposed an appointed body with vast powers to make the “tough” decisions elected politicians won’t make.

The stimulus bill does that, and calls it the Federal Coordinating Council for Comparative Effectiveness Research (190-192). The goal, Daschle’s book explained, is to slow the development and use of new medications and technologies because they are driving up costs. He praises Europeans for being more willing to accept “hopeless diagnoses” and “forgo experimental treatments,” and he chastises Americans for expecting too much from the health-care system.

Elderly Hardest Hit

Daschle says health-care reform “will not be pain free.” Seniors should be more accepting of the conditions that come with age instead of treating them. That means the elderly will bear the brunt.

Medicare now pays for treatments deemed safe and effective. The stimulus bill would change that and apply a cost- effectiveness standard set by the Federal Council (464).

The Federal Council is modeled after a U.K. board discussed in Daschle’s book. This board approves or rejects treatments using a formula that divides the cost of the treatment by the number of years the patient is likely to benefit. Treatments for younger patients are more often approved than treatments for diseases that affect the elderly, such as osteoporosis.

In 2006, a U.K. health board decreed that elderly patients with macular degeneration had to wait until they went blind in one eye before they could get a costly new drug to save the other eye. It took almost three years of public protests before the board reversed its decision.

Hidden Provisions

If the Obama administration’s economic stimulus bill passes the Senate in its current form, seniors in the U.S. will face similar rationing. Defenders of the system say that individuals benefit in younger years and sacrifice later.

The stimulus bill will affect every part of health care, from medical and nursing education, to how patients are treated and how much hospitals get paid. The bill allocates more funding for this bureaucracy than for the Army, Navy, Marines, and Air Force combined (90-92, 174-177, 181).

Hiding health legislation in a stimulus bill is intentional. Daschle supported the Clinton administration’s health-care overhaul in 1994, and attributed its failure to debate and delay. A year ago, Daschle wrote that the next president should act quickly before critics mount an opposition. “If that means attaching a health-care plan to the federal budget, so be it,” he said. “The issue is too important to be stalled by Senate protocol.”

More Scrutiny Needed

On Friday, President Obama called it “inexcusable and irresponsible” for senators to delay passing the stimulus bill. In truth, this bill needs more scrutiny.

The health-care industry is the largest employer in the U.S. It produces almost 17 percent of the nation’s gross domestic product. Yet the bill treats health care the way European governments do: as a cost problem instead of a growth industry. Imagine limiting growth and innovation in the electronics or auto industry during this downturn. This stimulus is dangerous to your health and the economy.

(Betsy McCaughey is former lieutenant governor of New York and is an adjunct senior fellow at the Hudson Institute. The opinions expressed are her own.)

Float Your Boat

2009-02-09T18:11:00.000-08:00

See How Much Money the FEDS Printed!

2009-01-30T14:42:00.000-08:00

Bailout Cost More than All Wars

2009-01-06T15:12:00.000-08:00

Value of 2008 Bailouts Exceeds Combined Costs of All Major U.S. Wars
Thursday, December 18, 2008
By Fred Lucas, Staff Writer

In this Sept. 23, 2008 file photo, the amount of U.S. national debt on Sept. 23 is shown on the National Debt Clock in New York. (AP Photos/Bebeto Matthews, file)(CNSNews.com) – The total value of the bailouts undertaken by the federal government in 2008 now exceeds the combined cost of every major war the United States has ever engaged in, according to a comparison of war costs calculated by the Congressional Research Service (CRS) and the value of the bailouts as calculated by Bloomberg News or Bianco Research.

According to CRS, all major U.S. wars (including such events as the American Revolution, the War of 1812, the Civil War, the Spanish American War, World War I, World War II, Korea, Vietnam, Iraq and Afghanistan, but not the invasion of Panama or the Kosovo War), cost a total of $7.2 trillion in inflation-adjusted 2008 dollars.

According to Bloomberg, the federal government has made commitments worth a total of $8.5 trillion in the bailouts of 2008. That includes actual expenditures as well as loan and asset guarantees.

Bianco Research puts the total value of the bailouts at $8.7 trillion.

The $296 billion spent on World War II, America’s most expensive war, would be $4.1 trillion adjusted to today’s dollars, according to the CRS report from June.

The adjusted cost of the Civil War would be $60.4 billion for both the Union and the Confederacy combined. The inflation-adjusted cost of the Vietnam War would be $686 billion. The cost of the current Iraq war up to last June was $648 billion, while the adjusted cost for Afghanistan to that point was $171 billion.

The total cost of the American Revolution was a relatively inexpensive $1.8 billion.

“World War II was financed by savings, the American people’s savings, when Americans bought war bonds,” said Olivier Garret, CEO of Casey Research, who analyzed the value of the bailout compared to the major U.S. wars and other major historical government expenses. “Today, families are in debt and government is in debt.”

In this Sept. 25, 2008 file photo, Dara Blumenthal, of Brooklyn, holds up a sign during a rally against Wall Street bailout in front of the New York Stock Exchange in New York. (AP Photo/Mary Altaffer, file)A Bianco Research report cited in Politico puts the number for the total value of bailouts at $8.7 trillion and also affirms the value to be higher than the cost of all American wars and historic initiatives. A spokesman with Bianco Research could not be reached for comment as this story went to press.

The bailouts, led by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, were taken as emergency actions to keep U.S. companies from going under and to prevent a total financial markets meltdown in the United States. Similar bailouts were issued in other countries to address the global financial crisis.

The Bush administration is mulling whether to use some of the $700 billion in TARP funds approved by Congress to bailout the financial industry to bailout U.S. automakers.

The bailouts could put U.S. taxpayers in a tough spot in the future, said Pete Sepp, spokesman for the National Taxpayers Union.

“I’m assuming the figures do not include the Cold War defense expenditures, which would probably amount to several trillion on their own,” Sepp told CNSNews.com. “In any case, it’s a stark illustration of just how quickly the federal government has gotten into a huge financial hole and dragged taxpayers into it in the process.”

“We can only hope and pray that many of these liabilities and guarantees and commitments the government has made will not have to be made good on,” Sepp said. “If we were to be responsible for paying out all of these obligations, even in the period of one or two years, it would be financially disastrous to the government’s credit rating and our own as taxpayers.”

Garret pointed to the cost that will be paid by Americans in the future. “Future generations of Americans are going to continue to finance the enormous amount of debt,” he said.

Why Gold Sold Down Today

2009-01-05T14:16:00.000-08:00

Here is the other "WHY" gold was sold down today.

The truth will set you free of the manipulators.

$25,000,000,000 of index commodity funds follow the index readjustments made herein.

Gold is REDUCED from 10.8 to 7.9 percent of the index which therein causes related selling by INDEX FUNDS.

Buying or selling by index funds is a yearly, onetime event. These adjustments are needless artificial buying and/or selling of specific commodities that skew market prices and produce opportunities both to buy and sell short.

You think reweighting is a product of a hands off process in today's rotten to the core world? You probably also believe in Santa Clause.

Beware, commodity index rebalancing ahead
Posted by Izabella Kaminska on Jan 05 15:34.

The major commodity indices rebalance their respective asset weightings once a year (or occasionally more) - and with that comes a mass dose of buying and selling. The 2009 rebalancing is expected to start sometime this week.

Luckily, JP Morgan has produced its best guess of how the 2009 reweightings of the DJ AIGCI and the S&P GSCI indices will impact the market.

The weightings for both indices are released ahead of time, but begin to kick in the first few working days of the new year. In the case of the DJ-AIGCI - which JP Morgan estimates has $25bn in funds tracking it - the new weightings come into force during the roll period that begins January 9th. The S&P GSCI index weightings kick-in after its January roll which commences January 8th. JP Morgan estimates about $50 bn of investment into that index.

As the DJ weighting multipliers account for changes in US dollar-denominated values there is generally more potential for large changes there than in the GSCI, whose weightings are set in terms of ounces/tonnes (on the basis of liquidity and are weighted by their respective world production quantities).

Accordingly, JP Morgan see the most significant change coming in the DJ-AIGCI rebalance. Here the market weight of crude oil is expected to increase from 9.6 per cent to 13.8 per cent, gold from 10.8 per cent to 7.9 per cent, copper (COMEX) from 4.5 per cent to 7.3 per cent, live cattle from 6.4 per cent to 4.3 per cent and sugar from 4.7 per cent to 3.0 per cent. Meanwhile, S&P GSCI crude oil weight will go from 32 per cent to 33.8 per cent. Their analysis:

In financial terms, we expect the rebalancing to have the greatest impact in gold, COMEX copper, crude oil, gold, and live cattle. We estimate that the rebalancing of the two indices is expected to result in $877 million of selling in gold, $699 million of buying in COMEX copper, $528 million of selling in live cattle, and $523 million of buying in crude oil.

US Debt Soars

2009-01-04T08:48:00.000-08:00

U.S. Debt Expected To Soar This Year
$2 Trillion Increase May Test Federal Ability to Borrow

By Lori Montgomery
Washington Post Staff Writer
Saturday, January 3, 2009; A01

With President-elect Barack Obama and congressional Democrats considering a massive spending package aimed at pulling the nation out of recession, the national debt is projected to jump by as much as $2 trillion this year, an unprecedented increase that could test the world's appetite for financing U.S. government spending.

For now, investors are frantically stuffing money into the relative safety of the U.S. Treasury, which has come to serve as the world's mattress in troubled times. Interest rates on Treasury bills have plummeted to historic lows, with some short-term investors literally giving the government money for free.

But about 40 percent of the debt held by private investors will mature in a year or less, according to Treasury officials. When those loans come due, the Treasury will have to borrow more money to repay them, even as it launches perhaps the most aggressive expansion of U.S. debt in modern history.

With the government planning to roll over its short-term loans into more stable, long-term securities, experts say investors are likely to demand a greater return on their money, saddling taxpayers with huge new interest payments for years to come. Some analysts also worry that foreign investors, the largest U.S. creditors, may prove unable to absorb the skyrocketing debt, undermining confidence in the United States as the bedrock of the global financial system.

While the current market for Treasurys is booming, it's unclear whether demand for debt can be sustained, said Lou Crandall, chief economist at Wrightson ICAP, which analyzes Treasury financing trends.

"There's a time bomb in there somewhere," Crandall said, "but we don't know exactly where on the calendar it's planted."

The government's hunger for cash began growing exponentially as the nation slipped into recession in the wake of a housing foreclosure crisis a year ago. Washington has since approved $168 billion in spending to stimulate economic activity, $700 billion to prevent the collapse of the U.S. financial system, and multibillion-dollar bailouts for a variety of financial institutions, including insurance giant American International Group and mortgage financiers Fannie Mae and Freddie Mac.

Despite those actions, the economic outlook has continued to darken. Now, Obama and congressional Democrats are debating as much as $850 billion in new federal spending and tax cuts to create or preserve jobs and slow the grim, upward march of unemployment, which stood in November at 6.7 percent.

Congress is not planning to raise taxes or cut spending to cover the cost of those programs, because economists say doing so would further slow economic activity. That means the government has to borrow the money.

Some of the borrowing was done during the fiscal year that ended in September, when the Treasury added nearly $720 billion to the national debt. But the big borrowing binge will come during the current fiscal year, when the cost of the bailouts plus another stimulus package combined with slowing tax revenues will force the government to increase the debt by as much as $2 trillion to finance its obligations, according to a Treasury survey of bond dealers and other market analysts.

As of yesterday, the debt stood at nearly $10.7 trillion, of which about $4.3 trillion is owed to other government institutions, such as the Social Security trust fund. Debt held by private investors totals nearly $6.4 trillion, or a little over 40 percent of gross domestic product.

According to the most recent figures, foreign investors held about $3 trillion in U.S. debt at the end of October. China, which in October replaced Japan as the United States' largest creditor, has increased its holdings by 42 percent over the past year; Britain and the Caribbean banking countries more than doubled their holdings.

Economists from across the political spectrum have endorsed the idea of going deeper into debt to combat what many call the most dangerous economic conditions since the Great Depression. The United States is in relatively good financial shape compared with other industrial nations, such as Japan, where the public debt equaled 182 percent of GDP in 2007, or Germany, where the debt was 65 percent of GDP, according to a forthcoming report by Scott Lilly, a senior fellow at the Center for American Progress.

Even a $2 trillion increase would push the U.S. debt to about 53 percent of the overall economy, "only a few percentage points above where it was in the early 1990s," Lilly writes, noting that plummeting interest rates show that "much of the world seems not only willing but anxious to invest in U.S. Treasurys, which are seen as the safest security that an investor can own in a risky world economy."

Still, some analysts are concerned that the deepening global recession will force some of the largest U.S. creditors to divert cash to domestic needs, such as investing in their own banks and economies. Even if demand for U.S. debt keeps pace with supply, investors are likely to demand higher interest rates, these analysts said, driving up debt-service payments, which last year stood at $250 billion.

"When you accumulate this amount of debt that we're moving into, it's not a given that our foreign friends are going to continue on the path they've been on," said G. William Hoagland, a longtime Republican budget analyst who now serves as vice president for public policy at the health insurer Cigna. "There's going to come a time when we can't even pay the interest on the money we've borrowed. That's default."

Others say those fears are overblown. The market for U.S. Treasurys is by far the largest and most liquid bond market in the world, and big institutional investors have few other places to safely invest large sums of reserve cash.

Despite their growing domestic needs, "China and the oil countries are going to continue running large surpluses," said C. Fred Bergsten, director of the Peterson Institute for International Economics. "They certainly will be using money elsewhere, but I don't think that means they won't give it to us."

As for the specter of default, Steven Hess, lead U.S. analyst for Moody's Investors Service, said even a $2 trillion increase in borrowing would not greatly diminish the U.S. financial condition. "It's not alarmingly high by our AAA standards," he said. "So we don't think there's pressure on the rating yet."

But that could change, Hess said. Nearly a year ago, Moody's raised an alarm about the skyrocketing costs of Social Security and Medicare as the baby-boom generation retires, saying the resulting budget deficits could endanger the U.S. bond rating. Even as the nation sinks deeper into debt to finance its own economic recovery, several analysts said it will be critical for Obama to begin to address the looming costs of the entitlement programs and signal that he has no intention of letting the debt spiral out of control.

Failure to do so, Bergsten said, would "create dangers . . . in market psychology and continued confidence in the dollar."

Gulf Oil States Dis the Dollar

2009-01-03T09:21:00.001-08:00

Will the New GCC Single Currency Include Gold?
by: Peter Cooper December 31, 2008

Gulf Cooperation Council leaders yesterday concluded their 29th annual summit meeting in Muscat, Oman with a final approval for the creation of a single currency for the six-nation economic bloc, still targeted for 2010.

Saudi Arabia is the largest economy in the GCC and boasts substantial gold reserves. But whether gold will be included in the currency basket has not yet been decided.

Golden opportunity

GCC assistant secretary-general Mohammad Al Mazroui told Gulf News: ‘We first have to decide on the location of the Central Bank, then the Central Bank and Monetary Council will have to decide on the gold reserves for the Central Bank’.

The creation of the GCC single currency - likely to be known as the Khaleeji which means Gulf in Arabic - is a major gold event for two reasons.

First, the breaking of their dollar pegs by the Gulf Arab nations is clearly dollar negative. Secondly, any inclusion of gold either as a part of the monetary basket, or in the reserves of the new GCC Central Bank will create additional demand for the precious metal.

2009 deadline

The project is gathering pace, and no lesser a figure than Saudi Arabia’s King Abdullah has directed that GCC economic integration committees speed up their work and complete the whole exercise by September 2009.

It is only a couple of months since a group of Saudi businessmen allegedly bought $3.5 billion worth of gold, believed to be the largest ever single transaction for the precious metal. Perhaps in 2009 it will be gold rather than local currencies which become of interest to speculators about monetary reform in the GCC.

Gulf countries are keen to break away from the link with the US dollar because it ties them to inappropriate monetary policies that exaggerate the boom-to-bust cycle in their economies.

My reaction: Wow, Arab countries have announced that in 2010 they will stop selling oil for US dollars. Even more interesting is the posibility of the Khaleeji being backed by gold. Could this foreshadow a move a move back to the gold standard?

In any case, this development, together with China making the Yuan an international currency, effectively end the dollar's role as the world's reserve currency. Soon, the US will be buying its oil in gold/Khaleeji and its consumer goods in yuan. The US dollar is now living on borrowed time.

Think about it: If you can't buy consumer goods or oil with dollars, what good are they as a reserve currency?

10 Strikes Against the Dollar for 09

2009-01-02T08:40:00.000-08:00

*****Ten Major Threats Facing The Dollar in 2009*****
by Eric deCarbonnel

Ten major threats are facing the dollar in 2009.

1) Foreign central banks selling US assets

Most of the nations which have been financing the US's massive current account deficits in recent years have either begun to sell their dollar reserves last year or are planning on selling them this year in order to support their currencies. These nations generally fall into three categories:

A) Oil Producing Nations

Oil producing nations have built up lavish spending habits and large dollar reserve in recent years as a result of profits from rising oil prices. Now that commodity prices have crashes, those profits are gone, and those Oil producing nations will have to bankroll their spending by selling their accumulated dollar assets. Saudi Arabia, for example, is projecting a 2009 Budget Deficit, which it intends to finance by selling off its US holdings. Russia, meanwhile, has already sold over 20% of its $598.1 billion reserves, and it can be expected to continue doing so this year.

B) Emerging markets that have been relying on capital flows to fund their trade deficits

Many emerging markets around the world have been running trade deficits in recent years financed by capital flows. The most prominent example from this group is India.

India's strong capital flows from tourism, software services, and remittances not only financed its trade deficit, but also increased its foreign reserves to an all-time high of 316.2 billion in May of 2008. However, due to the global slowdown and selloff of emerging markets, those capital flows have now reversed. India's central bank, for example, has been forced to sell off its US holdings to curb its currency's decline, and its total reserves have decreased by $62.2 billion. The central bank's dollar sales in October alone exceeded purchases by a record $18.7 billion. India now has $254 billion foreign reserves left, the majority of which will be sold this year to protect its currency.

C) "Developed" Nations

The US isn't the only "developed" nation in trouble. Other "developed" nations (ie: nations that chose to outsource the polluting and labor-intensive parts of their economies) are also collapsing. Japan, for instance, has seen a disastrous drop in demand for goods.

Japan's Industrial production fell 8.1% in November from the previous month (the biggest drop in the measure since the government started releasing comparable figures in 1953). Demand for Japanese exports is vanishing: November shipments of automobiles plunged 31.9 percent and shipments of microchips and other electronics components fell 29.0 percent. Due to this disappearing demand, Japan has incurred a trade deficit for two straight months for the first time since October-November of 1980.

With their own economic problems to deal with, it will not be other "developed" nations like Japan which will fund the US trade deficit in 2009. In fact, should the dollar begin to collapse, these nations could even be forced to sell their dollar reserves to protect their own currencies.

The dollar implications of this should be clear

After years of bankrolling US consumption with the purchase of dollar assets, most nations are going to be net sellers of dollars in 2009. Just Russia, Saudi Arabia, India, and Japan alone have around $2 trillion in US holdings, and, if the current trade trends continue, America can expect foreign central banks to sell at least 1 trillion dollars this year. This begs the question: who exactly is going to be buying all these assets?

2) The worsening US Trade deficit

The US Trade deficit is worsening because, while imports to the US are falling, exports are falling even faster. Demand for the big ticket durable and capital goods produced by "developed" nations is plummeting much faster than demand for cheap consumer imports, causing widening trade deficits with nations like China. The US's increasing trade and current account deficits means that America needs to attract over 700 billion dollars this year to keep the dollar from weakening.

3) Treasuries

It is extremely important to understand that treasuries are the modern day equivalent of money under the mattress, and that, when a crisis confidence hits the dollar, treasuries will be redeemed for printed cash from the fed. This is due to the fact that the US can't allow treasury prices to crash, for fear of having the world's financial system break down and global trade collapse. So a sustained selloff in treasuries would therefore force the fed to expand its balance sheet by trillions to monetize much of the outstanding federal debt.

Why the government can't let treasuries collapse

Even if the government does not step in to support treasury prices amid a selloff, the end result will be the same. Allowing a crash in treasury market would make the financial system insolvent and cause runs on the bank. The fed would then have to print money to make good on the 6.5 trillion insured deposits around the country, the 1.5 trillion insured senior bank debt, etc... Since trillions of printed dollars would be hitting the marketplace in either case, the fed will choose the least disruptive option of putting a floor under treasury prices with printed money.

Selling treasuries is equivalent to printing money

It is deceptive to think that, because the government is borrowing to fund its deficits and bailouts, it isn't printing money. This is false. Treasuries should be seen for what they really are: "promises to print money".

4) Gold

Rising demand for physical gold is a threat to the dollar because it signals a growing loss of confidence in the paper currency. It is also key to understand that gold prices aren't rising because of the changing fundamentals of gold, but because of the changing fundamentals of the dollar. In other words, gold isn't rallying, THE DOLLAR IS FALLING.

Gold is history's oldest and most stable currency. Its utility is simply that it is rare, and for 5,000 years people have used it to store value for the future. All the gold that has ever been produced would fit in a solid cube of about 19 meters on each side, and this cube is only expanding by about 12 centimeters a year (2%). Since the value and supply of gold itself is fairly constant over long periods of time, the main drivers of gold price fluctuations are the ebb and flow of confidence in paper currencies. Rising gold prices are, therefore, a signal of a weakening currency, which is why governments hate them and try to suppress them.

Right now, there is unprecedented worldwide demand for physical precious metals. As a result of this surging demand, gold futures have experiencing backwardation, a rare market condition where gold futures trade under spot prices. It is a signal that gold prices are headed higher and that confidence in our currency is fading quickly. When gold prices break above 1,000 again, the event should be recognized for what it is: the herald of a dollar collapse.

5) China and the yuan

China is in a different situation that most other nations as it has a growing trade surplus, which stood at $40 billion as of November. As a result of disappearing Asian demand for luxury items and commodity prices plunging, imports to China crashed 17.9 percent in November while its exports only fell 2.2 percent. This leaves China with a problem the US could only dream of: huge, unsustainable upward pressure on its undervalued currency.

In order to maintain the dollar peg, China would need to fund not only a large part of the US's gigantic trade deficits, but also the trade deficits of those nations around the world which are selling their dollar reserves. If imports keep falling at their current pace, China will have to buy close to 1 trillion dollars this year alone, which leads to yet another problem: right now, China is not interested In any kind of risky US assets, and what "safe" assets does the US have to sell? (Please don't say treasuries. All dollar denominated assets are inheritably unsafe due to the currency's horrible fundamentals.)

Trying to prop up the dollar would end up destroying its currency without benefiting its economy, and China knows this, which is why you have Chinese central bankers on record as saying that, "The US dollar is unlikely to be stable next year". Even more ominous for the dollar, China stealthily announced its plan to make the yuan an international currency on Christmas Eve last year. Whether intentional or not, by allowing Chinese exporters to settle their trades in yuan, China is taking a major step towards supplanting the dollar with the yuan as the world's reserve currency.

6) Never ending bailouts

Although many Americans such as myself are growing tired of America's never ending bailouts, it is important to brace yourself because there are a lot more on the way. Here are a few of the bailouts we will be seeing this year which haven't gotten much media coverage.

A) State government bailouts

State budget troubles are worsening. States have already begun drawing down reserves, and the remaining reserves are not sufficient to weather a significant economic downturn. Also, many states have no reserves and never fully recovered from the fiscal crisis in the early part of the decade.

The vast majority of states cannot run a deficit or borrow to cover their operating expenditures. As a result, states must close budget shortfalls by either drawing on reserves, cutting expenditures, or raising taxes. These budget cuts often are more severe in the second year of a state fiscal crisis, after reserves have been largely depleted. The federal government will eventually be forced to step in and offer states some form of assistance to prevent economic collapses and humanitarian disasters. This means another bailout.

B) Unemployment bailout

State-funded trusts which pay unemployment benefits are running out of money. The federal government has increased these funding problems through its repeated extensions of unemployment benefits, with the total run of the benefits now being 10 months. Since there is a massive, post-holiday wave of layoffs on the way, shortfalls in unemployment funding are going to come faster and be bigger than most anyone expects. In response to these shortfalls, congress will loan the states whatever is necessary to keep unemployment benefits coming, even if they have to print every last penny. After propping up financial institutions and indirectly paying their executives billions of dollars, they now have, politically speaking, no choice.

C) Pension Benefit Guaranty Corporation (PBGC) bailout

PBGC is an agency established by Congress to insure participants in defined-benefit pension plans against losing their pension in the case their employer goes under. Nearly 44 million Americans in more than 29,000 private-sector plans are protected by PBGC, and some 1.3 million workers are already covered by plans that have been taken over by the agency. Although the PBGC is financed from insurance premiums collected from companies and the assets it assumes from failed pension plans, it is a widely presumed that the federal government would bail out PBGC. if it became unable to meet its obligations for retirees.

There are several reasons to expect that PBCC might need such a bailout this year. First, PBCC is underfunded by $11 billion (based on very optimistic projections). Second, the economic downturn and financial market meltdown will likely cause PBCC to take over many private pension plans this year and most of these will be severely underfunded. Third, the agency's board decided recently to move a large share of the portfolio out of safe assets like Treasury bonds and into riskier assets like stocks. So, depending on how underfunded the pension plans it takes over next are and how badly its investment portfolio does, it is possible the PBCC might require a federal bailout by the end of the year.

D) Housing bailouts

Since a recovery from our downward spiral is unlikely until the housing markets stabilize, there is a good possibility that we will see another, bigger federal housing bailout this year as congress tries to jumpstart the economy. It is important to note that with every new bailout congress passes, it becomes harder to say no to such a homeowner bailout.

The true moral hazard of bailouts

Most commentators misunderstand the true moral hazard of bailouts. While bailouts might have an adverse effect on the future actions of individuals and businesses by encouraging risk taking, the real problem is their effects on future actions of the government. Specifically, each bailouts makes it harder to say no to the next bailout. This pressure to fund future bailouts is made far worse if those receiving bailout money are truly undeserving. After all, If the government is going to give $45 billion to Citigroup (one of the banks responsible for our current mess) and insure $306 billion of its riskiest assets, then how can it say no to bailing out the state of California or South Carolina?

This "me too" phenomenon will get much worse after the treasury market collapses, and the fed starts monetizing the treasuries that were sold to fund the current bailouts. If fed printed money to bailout the banks, why shouldn't it print more money to fund unemployment benefits? Politically speaking, you can't bailout the irresponsible and then let the responsible sink, which means congress isn't going to be saying no to a lot of the bailout requests this year. Unfortunately, these bailouts will become increasingly meaningless because, when you bail out everyone, you bail out no one as you destroy your currency.

7) US budget deficits and (lack of) Tax revenues

The federal government is a facing record breaking budget deficit in 2009. According to the latest government figures, the deficit currently is expected to be $438 billion. For a reliable idea of what our 2009 deficit will look like, to this number we need to:

A) Add the cost of funding the on-going wars in Iraq and Afghanistan
B) Add the cost of recent programs such as the TARP
C) Add the cost of current and future bailouts for the auto companies
D) Add the cost of another stimulus package
E) Add the cost of the programs promised to us by the new administration

After subtracting a further 500 billion for lost tax revenues due to our collapsing economy, it is easy to project a budget deficit of at least 2 trillion. So far, the deficit now totals $401.6 billion in just the first two months of this budget year, and, at this annual rate, the budget shortfall is already on track to exceed our expected number. All this isn't even taking into consideration our long term funding shortfall vis-a-vis baby boomers (the future of social security and Medicare is, unfortunately, clear: I would not expect it to be there when you retire (at least not anything like it is today)).

Our 2009 budget deficits will force the government to sell at least another 2 trillion treasuries this year. Taken together with planed sales by foreign central banks and the expected 1 trillion new bailouts mentioned above, at least 4 trillion treasuries will be sold in 2009. The question remains: who is going to buy them? The answer is that the fed will buy them with printed the money.

Don't worry about the children

For years Americans have worried about passing on our enormous federal debts to our children. Well there is good news on this front: you don't have to worry about the children anymore. America's massive debts aren't going to be paid for by a future generation. They will be paid for today through a massive devaluation of our currency.

What the dynamics of hyperinflation will do to the federal deficits

The current $2 trillion deficit projections being circulated in the media will prove woefully understated should the dynamics of hyperinflation take hold of the economy. A dollar collapse would cause our tax system to break down. Individuals whose income isn't keeping up with inflation will forgo tax payments to spend all their cash on food and basic necessities. Businessmen will find that by merely delaying tax payments, depreciation in the dollar will virtually eliminate their true value. Even the tax revenue that is paid will have lost most of its value by the time the government collects it. Meanwhile, the rising cost of everything will drive up the federal spending. The government, lacking adequate income to cover these rising expenses and unable to borrow due to the collapse of the treasury market, will be forced to resort more and more to money creation. If/when hyperinflation takes hold of America, do not be surprised to see 1% of government income come from taxes and 99% come from the creation of new money.

8) The "flight to quality"

During the second half of 2008, a "flight to quality" began as hedge funds sold foreign assets to meet redemptions requests. These forced repatriations by hedge funds combined with dollar's outdated reputation as a safe haven produced a record breaking rally in the treasury markets. This "flight to quality" is not something that hasn't seen before.

The phenomenon of investors blindly piling into an asset class while ignoring all warnings about the horrible fundamentals and deteriorating outlook has been so common lately that I am growing tired of seeing it. They are called bubbles, and the pattern is always the same:

A) Stock market, October 2007

In October 2007, stocks rallied to new all time highs while commentators made insane predictions about the Dow going to 20000. While this was happening, credit markets collapsing, growing mortgage default were threatened bond insurers with insolvency, and the off-balance sheet vehicles of financial institutions were imploding. Considering that the frozen credit markets are the lifeblood without which the economy can't function, these new highs made as much sense as subprime CDOs squared. It should not have surprised anyone that stocks collapsed.

B) Commodities, July 2008

In July 2008, commodities rallied to new all time highs while commentators made insane predictions about oil going to $200. All this was happening while thousands of factories in China were shutting down due to rising costs and falling orders. In the face of the world's plunging demand, the only reason that could possibly have justified $147 oil would have been a complete collapse of the dollar. That was not the case, and the oil bubble burst sending commodity prices plunging.

C) Treasuries and the dollar, January 2009.

The current rally in treasuries and the dollar is the latest in a long line of bubbles. Those same commentator which got it wrong on previous occasions are now predicting months of deflation and a new multi-year bull market for the dollar (worst prediction ever). Out of all the bubbles so far, this current rally in treasuries and the dollar is the most ridiculous. The fundamentals behind the dollar, as outlined in this article, are horrendous. There is simply no rational reason to believe the dollar will retain an ounce of value by the end of 2009.

Side note on how to deal deflationists

When faced with a deflationist (one of those individuals who believe in months of deflation and a dollar bull market), ask them this: who is going to finance our trade deficit and bailouts? If they say the world or foreign nations, then list off all the countries with trade deficits who will not be financing the US: Japan, India, Saudi Arabia, Russia, most European countries (with the possible exception of Germany), other oil producers, etc. If they insist on the notion that China alone will pick up the tab for everything, point out that during the great depression, when the US had massive manufacturing overcapacity, America shut down factories rather than extend credit to over indebted foreign nations.

A true "flight to quality" will soon begin

Dollar inflows due to hedge fund are over now, as is the dollar rally. As a true "flight to quality" begins, foreigners will start selling their gigantic holdings of US debt. With America's total external debt standing over $14 trillion, this move will cause the dollar's value and purchasing power to plunge.

9) A loss of confidence

Confidence is the single biggest factor in determining a currency's value, and periods of deflation, such as America has been experiencing these last few months, tend to undermine that confidence and create hyperinflation. Economic troubles, deteriorating debt ratios, and scary charts are a few of the factors resulting from a deflating economy that can lead investors to lose confidence in a currency.

US economic troubles

The US has boatloads of economic troubles ahead which are sure to eradicate what little confidence is left in our economy. Here are just a few of the negative economic developments to expect this year.

A) Post-holiday wave of layoffs

There is a wave of post-holiday layoffs in the pipelines. Since employers don't like to layoff workers right before or during the Christmas/New Year's holidays (bad publicity), there is a slew of pent-up job cuts about to occur this month. Chicago, for example, is preparing for mass layoffs in 2009, and we are likely to see at least 1 million jobs lost in the first two months of this year.

B) Manufacturing sectors problems

After having outsourced its polluting and labor-intensive industries abroad, the US manufacturing sector has been left heavily concentrated in durable and capital goods. Orders for these types of big ticket items are set months, if not years, in advance. Even before Lehman brothers went under, new orders for these products were falling drastically. The full effect of last year's big drop in orders, including job and production cuts, will only be felt throughout the course of this year. 2009 is not going to look pretty for what is left of our manufacturing sector.

C) New state taxes and spending cuts

As mentioned above, State budget troubles are worsening. Even with the eventually federal bailout, states will still need to drastically reduce spending and raise taxes. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. These cuts, like new taxes, drain an enormous amount of money out of circulation. This leaves business and individuals with less cash and thereby removes demand from the economy, causing state and federal GDPs to contract.

Deteriorating debt ratios

With federal debt growing and our GDP shrinking, our debt ratios are rapidly deteriorating. Especially with 2008 over now, economists are going to start putting numbers together and making estimates which will be truly scary. Although official figures aren't available yet, common sense can give us a good idea of what to expect. Take, for example, our net international investment position.

US's net international investment position = US owned foreign assets - Foreign owned US assets

America's net international investment position (what the US owes the world) has likely worsened enormously in 2008. For one, US stock markets have outperformed most foreign markets last year (easy to do since fed can print dollars to prop up the market), meaning that the valuation of US assets abroad decreased far more than the valuation of foreign owned assets at home. Hedge fund deleveraging and redemptions forced the selling of US assets abroad at those discounted prices, decreasing the amount of US assets held abroad and locking in the losses in crashing foreign stock markets. Furthermore, the misguided "flight to quality" which began in the second half of the year undoubtedly increased foreign claims on US assets as money flowed into treasuries. Finally, our trade and current account deficits likely increased foreign dollar holdings by at least $600 billion.

Taken together, these factors have most probably doubled the US's negative investment position in 2008, from 2.5 trillion to 5+ trillion. Since our GDP for 2009 will shrink below 10 trillion, the US now owes around half this year's GDP to the rest of the world. News that the US owes foreigners half its GDP will not exactly inspire confidence in the dollar.

Scary charts

Charts and other visuals can fully convey the magnitude of our current economic crisis in a way words cannot. With 2008 over now, expect to see some truly terrifying graphics depicting just how badly the US economy self-destructed last year.

10) The dollar's former self

The US dollar in 1944

Following the end of World War II, the United States was a global powerhouse whose domestic industries were producing half of the world's manufactured goods. At this time, the US was also a creditor nation and held over half the world's foreign reserves. As the US was running a huge balance of trade surplus, these immense foreign reserves were growing fast. In additions to foreign currencies, the United States also held $26 billion in gold reserves, approximately 60 percent of the world's estimated $40 billion. Finally, the dollar was the only post-war currency fully backed by gold.

The strength of the US economy, the fixed relationship of the dollar to gold at $35 an ounce, and the dollar's full convertibility into gold at that price made the dollar as good as gold. In fact, the dollar was better than gold: it earned interest and was more flexible than gold. It was under these strong fundamentals that, in 1944, the Bretton Woods agreement was signed and the dollar became the world's reserve currency.

Today's dollar

The fundamentals backing today are just as amazing as they were back in 1944, except in a negative sense. The US has managed to outsourced its industry to the point of total dependency on foreign imports for its basic consumer goods, energy, and, to an extent, even food. The US can today claim the exalted status of the most indebted nation in human history, with every level of society (individuals, corporations, local/state/federal governments, etc) owing an unpayably large amount of money. The US capital markets have been tarnish by widespread financial failures, haphazard bailouts, and blatant corporate corruption, the latest being the Madoff's ponzi scheme. There are also growing doubts about how much gold, if any, are left in our reserves.

Perhaps the most damning Indictment of our currency comes from this contrast between its past and current self. How can today's dollar be anything but a joke when compared to its former greatness?

The dollar's status as the world's reserve currency

The dollar became the world's reserve currency through its strong fundamental and by having the longest reliable history of increasing purchasing power. Today's dollar has long since lost both those qualities. Those pointing to the dollar's special status and expecting a new dollar bull market should realize that not everything about being the favored international reserve currency is positive. The downside of being the world's reserve is that everyone is sitting on a great pile of your money, which they could decide to dump back into circulation.

BOA Buys Lynch, Get Your Bail Out Bonus Here!

2009-01-01T15:44:00.000-08:00

Jim Sinclair’s Commentary

What a disaster has befallen on the financial industry thanks to OTC Derivatives manufacturers, 158 year old Lehman and 95 year old Merrill. We are yet to witness the final chapter of this horror story which is the death of the US dollar with America’s permanent fall from grace.

Thank you to the army of geeks who still do not know what all the fuss is about, to management that counted their bonuses but knew nothing about derivatives and regulators that were not at home.

Merrill 95-Year Run Ends as Bank of America Buys Firm
By Zachary R. Mider

Jan. 1 (Bloomberg) — Merrill Lynch & Co.’s 95-year run as an independent company is coming to an end as Bank of America Corp. completed its acquisition of the broker for about $33 billion in stock.

Bank of America, the biggest U.S. home lender, closed the purchase today, the Charlotte, North Carolina-based company said in a PRNewswire statement. Scana Corp., South Carolina’s biggest utility owner, will replace New York-based Merrill Lynch in the Standard & Poor’s 500 Index.

Merrill Lynch was founded by Charles E. Merrill in January 1914 and evolved into the world’s biggest brokerage, with an army of 17,000 financial advisers. After more than $50 billion of losses and writedowns tied to the collapse of the U.S. subprime mortgage market, Merrill agreed in September to a sale, escaping the fate of bankrupt Lehman Brothers Holdings Inc.

Bank of America, led by Chief Executive Officer Kenneth Lewis, 61, plans to cut 30,000 to 35,000 positions from the combined companies in the next three years because of the merger and a weak U.S. economy. Merrill CEO John Thain, 53, will remain as president of investment banking, trading and brokerage.

Bank of America rose 84 cents, or 6.3 percent, to $14.08 yesterday in New York Stock Exchange composite trading, valuing Merrill shares at $12.10 in the stock-for-stock exchange. That’s 88 percent less than their high of $97.53 in January 2007.

Obama's Ponziplausa

2009-01-01T08:44:00.000-08:00

Obama And That Other Ponzi Scheme
President-elect's name may emerge in Norman Hsu fraud trial

DECEMBER 31--As if being linked to one high-profile criminal case weren't enough, President-elect Barack Obama's name may soon pop up in another federal prosecution, this one involving a massive Ponzi scheme (no, the other massive Ponzi scheme). In addition to the Rod Blagojevich pay-for-play probe, Obama could figure in the upcoming fraud trial of Norman Hsu, the disgraced Democratic fundraiser who was charged last year with operating a $60 million pyramid scheme. According to investigators, Hsu, a major Hillary Clinton fundraiser, pressured investors to donate money to political candidates with whom he was aligned. In a letter last week to U.S. District Court Judge Victor Marrero, Hsu's lawyer, Martin Cohen, requested a 60-day delay in the start of Hsu's trial, scheduled to open January 12 (Cohen cited the "extraordinary level of negative publicity" generated by the recent arrest of alleged Ponzi schemer Bernard Madoff). In his December 22 letter, a copy of which you'll find below, Cohen also noted that Hsu was already "notorious for his political activities" and that it was "inevitable" that his client's "connections" to Bill and Hillary Clinton "and other democratic notables--including perhaps the president-elect--will be introduced at trial." Before becoming a key fundraiser for Hillary Clinton's presidential bid, Hsu co-hosted a 2005 California fundraiser for Obama's political action committee and introduced the Illinois Democrat to Marc Gorenberg, a Silicon Valley venture capitalist who later joined the Obama campaign's national finance committee. Prosecutors allege that Hsu directed his investors to donate money to specific candidates, and then reimbursed them in violation of federal campaign laws. Unswayed by Cohen's argument, Marrero declined to delay the trial, which will begin a week before Obama's inauguration.

73,000 Stores to Close in 2009

2008-12-31T07:22:00.000-08:00

Holiday Sales Drop to Force Bankruptcies, Closings (Update4)

By Heather Burke

Dec. 29 (Bloomberg) -- U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years.

Retailers may close 73,000 stores in the first half of 2009, according to the International Council of Shopping Centers. Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations.

More than a dozen retailers, including Circuit City Stores Inc., Linens ‘n Things Inc., Sharper Image Corp. and Steve & Barry’s LLC, have sought bankruptcy protection this year as the credit squeeze and recession drained sales. Investors will start seeing a wide variety of chains seeking bankruptcy protection in February when they file financial reports, said Burt Flickinger.

“You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out,” Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York, said today in a Bloomberg Radio interview. “There are a number that are real causes for concern.”

Sales at stores open at least a year probably dropped as much as 2 percent in November and December, the ICSC said last week, more than the previously projected 1 percent decline. That would be the largest drop since at least 1969, when the New York-based trade group started tracking data. Gap Inc. and Macy’s Inc. are among retailers that will report December results on Jan. 8.

Women’s Clothing, Electronics

Consumers spent at least 20 percent less on women’s clothing, electronics and jewelry during November and December, according to data from SpendingPulse.

Retail Metrics Inc.’s December comparable-store sales index will drop an estimated 1.2 percent, or 5 percent excluding Wal- Mart Stores Inc. Retailers’ fourth-quarter earnings may fall 19 percent on average, the seventh consecutive quarterly decline, according to Ken Perkins, president of Retail Metrics, a Swampscott, Massachusetts-based consulting firm.

Probably 50,000 stores could close without any effect on consumer choice, Gregory Segall, a managing partner at buyout firm Versa Capital Management Inc., said this month during a panel discussion held at Bloomberg LP’s New York offices. Only retailers with healthy balance sheets will survive the recession, according to Matthew Katz, a managing director at consulting firm AlixPartners LLP.

Store Closings

The ICSC predicts, using U.S. Bureau of Labor Statistics data, that 148,000 stores will shut down in 2008. That would be the largest number since 151,000 closings in 2001, during the last recession, according to ICSC Chief Economist Michael Niemira. The total number of retail establishments will decline by about 3 percent this year, also taking into account locations that were opened, he said. The U.S. had 1.11 million retail locations in 2002.

Another 73,000 locations may shut their doors in the first part of 2009, Niemira said.

The U.S. economy shrank in the third quarter at a 0.5 percent annual pace, the worst since 2001, according to the Commerce Department. Economists surveyed by Bloomberg in the first week of December forecast the world’s largest economy will contract through the first half of 2009.

The Standard & Poor’s 500 Retailing Index has shed 34 percent this year, with only two of its 27 companies rising.

The index doesn’t include Wal-Mart, the world’s largest retailer, which fell 24 cents to $55.11 at 4:02 p.m. in New York Stock Exchange composite trading. Wal-Mart shares have gained 18 percent this year.

UK Pound Falls Below Euro

2008-12-29T16:17:00.000-08:00

Pound Falls to 98 Pence Per Euro for 1st Time on Housing Slump

By Matthew Brown

Dec. 29 (Bloomberg) -- The U.K. pound weakened to a record 98 pence per euro after an industry report said house prices will probably extend declines next year, boosting the case for deeper interest-rate cuts by the Bank of England.

Britain’s currency also dropped versus 14 of its 16 most- traded counterparts, falling for a second day against the Swiss franc and tumbling to a 14-year low against Japan’s yen. Property research company Hometrack Ltd. said U.K. house values slid 8.7 percent this year, led by a 10.1 percent drop in London, and that prices will “inevitably” decline in 2009.

“Parity is ever more likely” between the pound and the euro, said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “If there’s going to be a turnaround in euro-sterling it needs to come from the euro.”

The pound depreciated as much as 2 percent to 98 pence per euro, its sixth straight daily drop, and was at 97.47 pence by 5:35 p.m. in London, from 96.10 pence at the end of last week. It sank 25 percent against the European common currency this year, the most since the euro was introduced in 1999.

Britain’s currency dropped as much as 1.3 percent versus the yen to 76.31 pence, the lowest since April 18, 1995, before paring declines to 76.06 pence. It slipped 2.5 percent to 1.5218 francs. The U.K. currency was little changed at $1.4573, near the lowest level in more than three weeks.

“Sterling’s had to contend with the soft house-price numbers overnight” and retailers haven’t “had a particularly good December,” said Maher.

More than 1,600 people will lose their jobs in the U.K. every day in 2009, the Daily Telegraph reported, citing a report by the Chartered Institute of Personnel and Development. A total of 600,000 face being put out of work next year, the newspaper said today.

Rate Cuts

The Bank of England cut its main interest rate to 2 percent from 5 percent this year as the British government nationalized Northern Rock Plc and Bradford & Bingley, and took stakes in Royal Bank of Scotland Group Plc, HBOS Plc and Lloyds TSB Group Plc to prop up the financial sector. The U.K. economy is in its first recession in 17 years.

“There are very few people betting against a 1:1 rate now” between the pound and the euro, said Angus Campbell, head of sales at Capital Spreads. “Expectations for further cuts in interest rates are proving a serious negative for sterling and, with a shortened week once again, it’s not long before the next meeting.”

The U.K. central bank will cut its main rate a half-point to 1.5 percent at its meeting on Jan. 8, according to the median estimate of 38 economists surveyed by Bloomberg News.

Rebound Forecast

Even after its worst-ever year against the euro, Britain’s currency may rebound in 2009 as investors bet on a recovery in the U.K. economy, according to the world’s biggest currency traders.

The pound will strengthen 14 percent versus the euro next year, according to the median forecast of 42 analysts and strategists surveyed by Bloomberg. Deutsche Bank AG, the largest trader as measured by Euromoney Institutional Investor Plc, expects a 20 percent gain. At the same time, economists surveyed by Bloomberg before a Jan. 2 industry report estimated Europe’s manufacturing industries shrank for a seventh month in December.

‘Signs of Life’

“We’ll see some signs of life in the U.K. economy sooner than we do in the euro zone,” said Henrik Gullberg, a strategist at Deutsche Bank in London. “Even though we might be far away from a rate hike in the U.K.,” it may happen “sooner in the U.K. than in the euro zone,” he said.

The European Central Bank lowered its main refinancing rate by 0.75 percentage point to 2.5 percent on Dec. 4, its biggest- ever cut, as the euro region suffered the first recession since the introduction of its common currency.

U.K. government bonds fell, pushing the yield on the 10-year gilt up five basis points, or 0.05 percentage point, to 3.10 percent. The price of the 5 percent security due March 2018 slipped 0.45, or 4.5 pounds per 1,000-pound ($1,457) face amount, to 115.07. The two-year gilt yield increased three basis points to 1.17 percent. Yields move inversely to bond prices.

Gilts declined as gains in equity markets sapped demand for the safest assets. The FTSE 100 index of leading U.K. stocks advanced 2.4 percent, the most in three weeks.

Yuan Kills Dollars

2008-12-25T17:55:00.000-08:00

*****China makes Yuan an international currency*****
by Eric deCarbonnel

China makes yuan an international currency! This is a HUGE development which is VERY bearish for the dollar. Below are three articles on the subject.

(emphasis mine) [my comment]

Article from xinhuanet.com:

Commerce minister: China not to promote export through currency depreciation
www.chinaview.cn 2008-12-24 14:02:32

BEIJING, Dec. 24 (Xinhua) -- China will not hinge upon depreciation of its currency, renminbi, to expand exports, according to Commerce Minister Chen Deming. [very, very bad news for the dollar and the US.]

"Given shrinking demand from abroad, the effect of export stimulation through currency depreciation is rather limited," Wednesday's People's Daily quoted Chen as saying.

"Recently, some countries depreciated their currencies but failed to reverse the downward trend of their foreign sales through such moves," he told the paper. [He is talking about South Korea whose currency fell by a third against the dollar this year. South Korea's exports are down 18%.]

China hoped that all nations would make joint efforts and enhance coordination to keep international foreign exchange markets stable, Chen said. [He is implying here that something might happen to make the foreign exchange markets unstable (dollar collapse)]

article from AFP:

China to try using yuan as settlement currency in some foreign deals: report
15 hours ago

BEIJING (AFP) — China will use the yuan in transactions with neighbouring economies on a trial basis, state media said Thursday, calling it a potential first step to making it an international currency.
…
The initiative emerged from a meeting Wednesday of the State Council, or cabinet, but no details were available on when it would be implemented, according to the paper.

"The move will... increase the yuan's acceptance in Asia, which will help it become an international currency in the long run," Zhao Xijun, a finance professor at the People's University in Beijing, told the paper.

The vast majority of China's foreign trade deals are currently settled either in euros or US dollars.
…
Central bank governor Zhou Xiaochuan warned earlier this month that settlements using the US dollar would be problematic if the dollar's value fluctuated drastically.

There has been growing pressure over the past year within China to make the yuan an international currency, but the government has so far been cautious as it would require making it fully convertible, the paper said.

The yuan is not yet convertible on the capital account, meaning funds cannot freely enter the country for purposes such as investment in stock or real estate.

The Chinese government is concerned that liberalising this type of fund flow would make the economy more vulnerable during times of regional or global turmoil.

Another article from xinhuanet.com:

Senior official: Renminbi likely to be used as currency for forex reserves
www.chinaview.cn 2008-12-25 17:01:12

BEIJING, Dec. 25 (Xinhua) -- China's currency, Renminbi, is likely to join other international currencies to be used for forex reserves by other economies, according to Wu Xiaoling, former vice governor of the country's central bank and now the deputy head of the financial and economic committee under the top legislature.

Wu made the remarks in her article carried by the latest annual issue of the leading business magazine Caijing.

Wu wrote that China should make preparations in its economic structure and its financial regime for its currency to be internationalized.

Prior to making the Renminbi, also called yuan, a currency used for forex reserves by other economies, it may be allowed to be used for trade settlements between China and some other countries and regions, according to Wu.

In China's neighboring countries, there were calls for the yuan to be used to settle bilateral trade payments, she said. China has signed settlement agreements with eight neighboring countries, including Russia, Mongolia, Vietnam and Myanmar, assuming a voluntarily choice of settlement currency, she added.

Many were confident of the yuan and willing to settle trade payments in the Chinese currency, as it remained strong, Wu said.

"China should create conditions for the yuan to become an international settlement currency," she stressed.
…

The Chinese Government has decided to allow the yuan to be used for settlement between Guangdong Province and the Yangtze River Delta and the special administrative regions of Hong Kong and Macao.

Meanwhile, Guangxi Zhuang Autonomous Region and Yunnan Province will be allowed to use Renminbi to settle trade payments with ASEAN (Association of Southeast Asian Nations) members, according to a government announcement on Wednesday evening.

But the Government did not give any details of how and when the pilot currency program would start.

"The move will mitigate the risk of exchange rate fluctuations for Chinese exporters and their trade partners," Zhao Xijun, finance processor at Renmin University of China, was quoted as saying by Thursday's China Daily.

My reaction: Wow.

First, the big news items:

1) China has announced its intentions to make the yuan an international currency.

2) China not to promote export through currency depreciation.

3) China has signed settlement agreements with eight neighboring countries, including Russia, Mongolia, Vietnam and Myanmar, assuming a voluntarily choice of settlement currency.

4) Soon, foreign central will likely be able to use the yuan for forex reserves.

5) China is worried about a possible dollar devaluation

My comments on the story:

1) These announcement was made on Charismas to avoid tanking the dollar.

2) If yuan becomes an international currency, there will a massive migration by central banks from dollar reserves into yuans, because the China's fundamentals are so strong compared to the US.

3) China's announcement that they will not " promote export through currency depreciation" means Chinese financing of our trade deficit is about to come to a very nasty end.

4) From the articles I have read, it is apparent that Chinese exporters are screaming at their government to internationallize its currency so they can bill in yuan instead foreign currencies. Their desire is completely understandable. After all, how would you like to be paid in monopoly money (US dollar)?

5) If the yuan is allowed to compete freely with the dollar, our currency will get crushed.

Again, wow. I have been predicting that China would drop its dollar peg, but now it is actually happening...

50-50 Chance of Depression , Bloomberg

2008-12-23T14:14:00.000-08:00

50% chance of depression in US
Bloomberg
Published: December 20, 2008, 22:40

San Francisco: The US economy has a 50 per cent chance of falling into a depression during the next three years, said Roger Farmer, a member of the National Bureau of Economic Research's economic fluctuations and growth programme.

"There's a significant probability things will get worse," Farmer, 53, said during a phone interview Friday. "We're certainly not at the end of the recession and things are getting worse."

A drop in the Conference Board's index of leading indicators, released Thursday, underscores econo-mists' expectations that the recession will be the longest in the postwar era as banks restrict credit, home and stock values plunge, and job losses mount. Farmer said he is predicting the US recession will last at least another year.

"Everything depends on business confidence, and what I see is declining confidence," said Farmer, who is also graduate vice-chair of the Economics Department of the University of California at Los Angeles.

The loss of confidence is leading households and companies to undervalue assets, which is hurting consumer spending and investment, he said. A government fiscal stimulus programme will have a "questionable" immediate effect on consumption and financial markets, Farmer said.

Instead, he said he supports the idea of letting the Federal Reserve or government step into the stock market by buying indexed securities such as those linked to the Standard & Poor's 500 Index.

Left to itself

"I don't think anything from historic episodes suggests that, left to itself, the economy is going to magically recover and come back to full employment," he said.

Employers cut 533,000 jobs from payrolls in November for a total loss so far this year of 1.9 million, which more than erases the 2007 gain of 1.1 million. The unemployment rate, now at 6.7 per cent, may go above 10 per cent, Farmer said.

Farmer's views on the likelihood of a US depression contrast with those of other economists, such as New York University professor Nouriel Roubini, who told Bloomberg Television last week that he sees a severe recession and not a depression.

Jim Rogers, Super Inflation

2008-12-22T07:13:00.000-08:00

U.S. Approaches Insolvency

2008-12-20T18:16:00.000-08:00

U.S. debt approaches insolvency

Asia News
December 20, 2008

In the United States, the danger of debt insolvency is growing, putting at risk the currency reserves of foreign countries, China chief among them. According to new figures published by Bloomberg in recent days (Nov. 25, 2008 [1]), the American government has employed a total of 8.549 trillion dollars to stop the financial crisis. This means a total of about 24-25.4 trillion dollars of direct or indirect public debt weighing on American taxpayers. The complete tally must also include the debt - about 5-6 trillion dollars - of Fannie Mae and Freddie Mac, which are now quasi-public companies, because 79.9% of their capital is controlled by a public entity, the Federal Housing Finance Agency, which manages them as a public conservatorship.

In 2007, public debt in the United States was 10.6 trillion dollars, compared to a GDP (gross domestic product) of 13.811 trillion dollars. In just one year, direct and indirect public debt have grown to more than 100% of GDP, reaching 176.9% to 184.2%. These percentages exclude the debt guaranteed by policies underwritten by AIG, also nationalized, and liabilities for health spending (Medicaid and Medicare) and pensions (Social Security)[2]. By way of comparison, the Maastricht accords require member states of the European Union (EU) to reduce their public debt to no more than 60% of GDP. Again by way of comparison, in one of the EU countries with the largest public debt, Italy, public debt in 2007 was equal to 104% of GDP.

In 2007, 61.82% [3] of America’s public debt was held by foreign investors, most of them Asian. So the U.S. public debt held by nonresident foreigners is equal to about 109.39% (113.86%) of GDP. According to a study by the International Monetary Fund, countries with more than 60% of their public debt held by nonresident foreigners run a high risk of currency crisis and insolvency, or debt default. On the historical level, there are no recent examples of countries with currencies valued at reserve status that have lapsed into public debt insolvency. There are also few or no precedents of such a vast and rapid expansion of public debt.

The United States also runs large deficits in its public balance sheet and balance of trade. Families and businesses are also deeply in debt: in 2007, American private debt was equal to a little more than 100% of GDP. At the moment, it is not clear how much of America’s private debt has been “nationalized” with the recent bailouts.

In the early months of next year, when the official data are published, the United States will run a serious risk of insolvency. This would involve, in the first place, a valuation crisis for the dollar. After this, the United States could face a social crisis like that in Argentina in 2001. A crisis in U.S. public debt would likely have a severe impact on the Asian countries that are the main exporters to the United States, China first among them. Chinese monetary authorities, thanks to a steeply undervalued artificial exchange rate, at about 55% of its fair value, have limited imports (including food) and have achieved an export surplus. This has allowed them to accumulate a large stockpile of dollar reserves. In a currency crisis, China risks losing much of the value of its accumulated currency reserves. At the same time, pressure on imports (wheat, other grains, and meat) have led to inflation in the prices of food, the most important expenditure for more than 900 million Chinese. This is nothing more than a small confirmation of the recent statements of the pope, in his message for the World Day for Peace, where the pontiff calls the current financial system and its methods “based upon very short-term thinking,” without depth and breadth (nos. 10-12), preoccupied with creating wealth from nothing and leading the planet to its current disaster.

S & P Downgrades 11 Banks

2008-12-19T16:45:00.000-08:00

S&P downgrades 11 of world’s top banks
By Jane Croft in London and Greg Farrell in New York

Published: December 19 2008 18:30 | Last updated: December 19 2008 18:30

Eleven of the world’s biggest banks were downgraded Friday by Standard & Poor’s after the ratings agency said the current downturn could be longer and deeper than previously thought.

Six major US banks were downgraded, including JPMorgan Chase, Bank of America and Wells Fargo, as well as five banks in Europe.

EDITOR’S CHOICE
In depth: European banks - Apr-10In depth: US banks - Oct-15Mixed response to Credit Suisse’s pay plan - Dec-19The agency cut its ratings on Citigroup, Morgan Stanley and Goldman Sachs by two notches each. In Europe, S&P shaved one notch off the ratings of Barclays, Credit Suisse, Deutsche Bank, Royal Bank of Scotland and UBS.

While the downgrades were driven in part by the worsening economic climate in the US and abroad, S&P noted specific causes for concern at each institution.

S&P analyst Tanya Azarchs said that, in addition to the economic woes, the banking sector’s “lax underwriting standards due to excess competition mean this cycle will be worse than prior cycles”.

UBS saw its rating fall from AA- to A+ as S&P highlighted the extremely high level of losses suffered by the Swiss bank since the start of the business cycle, reflecting “larger risk concentrations and weaker risk management than we had previously perceived”.

Deutsche Bank also saw its ratings lowered from AA- to A+ as S&P pointed out that it viewed asset quality “as likely to weaken materially and risk management to be weaker relative to risks”.

Barclays was downgraded from AA to AA- as S&P said that although Barclays had diversified its loan book many of its geographic exposures were in countries such as Spain and the UK, where it believed there was potential for a severe slowdown.

S&P also singled out Barclays’ increased exposure to capital markets from the acquisition of the former businesses of Lehman.

The agency also downgraded Royal Bank of Scotland from AA- to A+, despite the £20bn of capital it has received from the UK government. It said the bank had been lossmaking in the first half and it expected earnings to remain severely under pressure.

S&P also downgraded Goldman Sachs and Morgan Stanley, raising questions about the ability of both investment banks to thrive after their conversion to bank holding companies.

But, of the two, S&P was more negative on the outlook for Morgan Stanley.

“We view Morgan Stanley as very much in a turnaround mode and we do see somewhat more potential for further deterioration there than at Goldman Sachs,” S&P credit analyst Scott Sprinzen said Friday.

Bank of America’s acquisition of Merrill Lynch also raised concerns, particularly since Merrill could generate more writedowns in commercial real estate and leveraged loans. Despite BofA’s history of integrating companies it acquired, “the purchase of Merrill Lynch carries unique integration risk”, the agency said.

See How You Lost All Your Money in 60 Seconds

2008-12-19T11:39:00.000-08:00

See How You Lost All Your Money in 60 Seconds @ Yahoo! Video

Today's Gold Markets

2008-12-18T17:23:00.000-08:00

I mentioned yesterday in my commentary that it would not be unexpected to see a bit of a respite in the savage Dollar mauling that has been taking place over the last week. Markets rarely tend to continue in moves of such extent without a bit of a pause for players to pocket profits unless they are in a parabolic blow off phase such as what we are seeing in the bond market. It should come as no surprise then to learn that last evening the monetary authorities of Japan began to surface after having been in hibernation for some time now only to make their usual noises about “excessive movements in the Forex markets”. That is code speak for “we do not like the strong yen”. Of course, that was enough to send yen buyers to the sidelines in a big hurry. I personally love the Japanese monetary authorities because they are so predictable. When you do not hear from them you begin to wonder if something is wrong with the universe.

Either way, their “verbal intervention” served to temporarily derail the yen which also seemed to take the steam out of most of the major currencies as well taking some off their best overnight levels and actually bringing some into negative territory. That was the signal for short-term oriented gold day traders to use the $880 level hit to go ahead and exit and book some paper profits. The selling there confirms $880 as the resistance level which will need to be bettered in order for gold to run to $900 or above. For now it is serving to cap upward momentum. My guess is that the bullion banks have surfaced at that level and some guys decided not to press them without a much weaker dollar especially with crude oil crashing down through the $40 level. OPEC had better attempt something fast or crude will be at $30 in a heartbeat. The good thing for the rest of us is that we can go out and buy some gas guzzlers again ( you know – those vehicles which actually can seat a normal family without shaping them into something resembling a can of packed sardines). Maybe this cheap gasoline can be the new bailout package for the auto industry.

The bond bubble continues expanding with no end in sight as traders are convinced that the Fed is going to be buying along the outer end of the curve. With support like that below the market, the path of least resistance is higher. Whether or not the Fed actually does such a thing is immaterial at this point – the very suggestion that they are going to do so is enough to actually accomplish their intentions. Doesn’t it amuse you how easily grown, “sophisticated” investors can be herded around by these pestilential central bankers? That crowd prides themselves on being able to decipher obtuse financial and economic signals unlike the rest of the ignorant peasants and dolts who constitute the mere working class. Yet it is this same smug and oftentimes arrogant crowd that are rounded up like witless sheep and sent off in the direction that their shepherd masters intend them to go. Oh well, it really doesn’t matter much as long as they can make money off of it so I suppose the image of being driven around like mindless idiots doesn’t particularly prove troublesome to them.

December gold deliveries continue with another 127 being issued and stopped this morning. That brings the total for the month to 13,170 or 1.317 million ounces. Warehouse supplies showed a sizeable drop yesterday which is nice to finally observe. Registered was down to 2.8 million ounces. Keep in mind that playing the paper gold game and expecting to beat the bullion banks at it is a fool’s dream. Unless the gold is removed and taken out of the warehouses, the Comex will never be a freely traded market. We know full well that the CFTC has been asleep at the wheel for a long time now so do not expect any help from that quarter. The only thing that the paper shorts fear and respect is a lack of physical metal –everything else is blithely and I might add, safely ignored. Hedge funds looking for a way to beat these parasites have the strategy laid out in front of them do so – the question is will they actually leave their black box algorithms long enough to think about this and implement it. Another Fifteen to Twenty thousand contracts taken and stopped would put an end to the bullion bank reign over the sand box. That is chump change in today’s markets especially when you consider that at one time the hedgies had well over 240,000 long positions early this year. The margin necessary to carry positions of such size is proof that the financial resources necessary to take delivery of the physical gold exists – the only question is whether or not the will do so does. The down side of things is that the hedgies have never proved to be resourceful or clever – how can they be when they have long ago delegated their thinking to their computers?

Many of you have no doubt seen the article about unprecedented gold demand in Europe – demand so great that the refiners in Switzerland cannot keep up with it. Reports like this, of which we have seen so many in recent weeks, just serve to underscore how completely disconnected from reality the Comex paper gold market has become. Gold bulls – are you listening….

Technically paper gold has confirmed resistance at the $880 level with support near $850 and below that at $838 - $835 basis February. A breach of $880 that can be maintained for more than a couple of hours targets $900 and above.

Open interest saw a sharp increase yesterday which reveals the presence of plenty of new buyers. However, most of those are sitting on a paper loss after this morning’s move lower. If enough dip buyers surface, they will be okay.

The mining shares followed through on their late day weakness in yesterday’s session as selling was evident from the opening bell this morning. The HUI and XAU have closed higher for the last 7 out of 8 days so a setback is not that big of a deal. I do want to see where the buying support on this dip emerges however as most of the major moving averages are trending solidly higher. There is some support in the HUI at 257 and again near the 247 level. The HUI remains above the 100 day even with today’s down session.

Next week volume and liquidity will probably begin to dry up meaning that the ingredients for lots of volatility will be in place. Get used to it between now and the beginning of the New Year.

Desperate FED

2008-12-18T08:33:00.001-08:00

A Most Desperate Move by the Fed

Prof. Rodrigue Tremblay
Global Research
December 18, 2008

"In a crisis, discount and discount heavily."Walter Bagehot (1826-1877), British economist

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs." Thomas Jefferson (1743-1826), 3rd U.S. President.

"By this means [printing money] government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft." John Maynard Keynes (1883-1946), British economist

On December 16 (2008), the Bernanke Fed took the most unusual step of lowering the overnight inter-bank lending rate, the federal funds rate, to a level never reached before, i.e. zero percent with an upside limit of 0.25 percent. It also announced that it will buy “large quantities of” mortgage-backed securities and is considering doing the same thing with Treasury bonds of longer maturities, in order to lower the entire yield curve. What it did not say explicitly is that the Fed is ready to debase the U.S. dollar to artificially low levels in order to reflate the U.S. economy. What the Fed wants is to trigger monetary inflation and change deflation expectations at all costs through large-scale debt monetisation and thus floating excess debts in a sea of newly created money.

Overall, what the Fed has done, in effect, is to announce that it is suspending the normal functioning of private credit and capital markets, according to supply and demand, and has decided to micro-manage such failing markets for the foreseeable future, that is to say as long as deflationary pressures, in its own view, persist in the U.S. economy. The Fed is also taking big chunks of ownership in large private U.S. banks in order to recapitalize them and to let them deleverage themselves in an orderly way.

People may want to know why the Fed went to that “socialist” extreme and what will be the financial and economic intended and unintended consequences?

A d v e r t i s e m e n t

First of all, let’s keep in mind that the Fed is the only central bank in the world that is partly public-owned and partly private-owned. Bankers sitting on the Fed board can make decisions to lend new money to themselves at whatever rate they choose. The entire American financial and fiscal system is run by bankers, either at the Fed or at the Treasury. Indeed, beginning on January 20 (2009), the Obama administration’s Treasury Secretary will be the current president of the New York Fed, Mr. Timothy Geithner, who will be replacing Secretary Henry Paulson, himself a former CEO of the Wall Street investment bank Goldman Sachs.

Although the U.S. President initiates and Congress approves the nominations of the seven members (currently only five in exercise) of the Federal Reserve Board of Governors (for a 14-year term), the de facto managing of the Fed is left to bankers. This is done through the Federal Open Market Committee (FOMC) which implements monetary policy through open market operations and other discounting policies and discount loans. It is comprised of the seven members of the Board of Governors and five presidents of the twelve Federal Reserve District Banks. The Chairman of the Fed Board is also the Chairman of the FOMC. The President of the New York Fed is always on the FOMC and acts as its Vice Chairman. [The remaining 4 fed member slots are shared and rotated among the remaining 11 District Banks. In fact, the presidents of all twelve Federal Reserve District Banks are present at the FOMC meetings, but only five are enabled to vote at any given time. But, since members of the Fed board often originate from the regional Fed banks or from private banks, bankers are often in the majority in deciding American monetary policy.]

Secondly, by taking over private financial markets, the Fed is, in effect, covering its own mistakes (and those of the SEC and of the U.S. Treasury) for having allowed the building up of a shaky pyramid of asset-backed securities (ABS), not the least being the toxic mortgage-backed securities, and the gambling-prone credit default swaps (CDS), that has been crumbling to the ground.

It is my feeling that the Fed, by creating a bond bubble, at this time is only postponing the day of reckoning and is buying time. When the bond bubble bursts, and believe me, it will burst, as all bubbles do, this will push the U.S. economy further down. For instance, when this happens, many capitalized pension funds could fail and many retirees could be then pushed toward poverty. Future spikes in interest rates will hurt investments and damage the economy even more.

Meanwhile, a bout of competing currency devaluations has been launched, since other governments and other central banks will have to try to debase their own currencies if they want to avoid importing the worst of the U.S. economic downturn. This will be reminiscent of what happened during the 1930s economic depression. Not a pretty perspective for the future of fiat currencies.

It seems that the Fed has an uncanny talent for creating financial and economic bubbles. In the late 1990s, after the Asian financial crisis and after the near failure of the hedge fund Long-Term Capital Management (LTCM), in September 1998, the Greenspan Fed flooded the U.S. economy with liquidity and created the 2000 tech bubble. The same Greenspan Fed aggressively lowered the Federal Funds rate from 6.5 percent to 1 percent in 2004, thus paving the way to the worst housing bubble in American history. Now, the Bernanke Fed is at it again, and, by lowering the federal funds rate to close to zero and by announcing that it stands ready to monetize U.S. Treasury debt, it is actively blowing into what has the appearance of one of the worst bond bubbles ever.

Of course, the Fed has bestowed so much money on banks in exchange for their bad debts while the banks themselves are unwilling to lend, that U.S. banks’ excess reserves at the Fed have exploded to more than half a trillion (November ‘08), which is ten times what is required. This is a sign that the U.S. economy is currently in a liquidity trap.

There is a lot of money in the system, but it is not circulating. The velocity of money is down. In such a situation of excess liquidity, when the Fed creates more liquidity, it is like pushing on a string. Therefore, by lowering short-term interest rates to close to zero, the Fed is helping itself before helping others, since it will be paying less interest on Banks’ excess reserves, most of which came from the Fed anyhow. Some of the excess liquidity can spill into the stock market and lift all boats for a while. However, the true test of the Fed’s recent desperate move will be if banks increase their lending. We shall know in due course.

Desperate FED

2008-12-18T08:33:00.000-08:00

Print More Money

2008-12-18T07:01:00.000-08:00

Today’s New York Times spells out in stark black and white the government plan.

IN OUR OPINON THIS PLAN IS A VERY POSITIVE CATALYST FOR GOLD AND FOREIGN CURENCIES TO CONTINUE TO RISE FOR A PROLONGED PERIOD.

May I quote From a front page NYT article entitled “In A Bold Action, Fed Cuts A Key Rate To Virtually Zero”

“…Of much greater practical importance, the Fed bluntly announced that it would print a much money as necessary to revive the frozen credit markets and fight what is shaping up as the nation’s worst economic downturn since World War 2.”

THAT SAYS SOMETHING LOUD AND CLEAR

May I translate: In my opinion, they are saying we want to liquidify the banking system, and we want to do it now. We know that there will be consequences such as a lower US dollar and more inflation. We are just as happy that the dollar is falling - this will help with exports. We are not happy that inflation will rise, but that is a necessary side effect of bringing liquidity back to the banking system so be it. We will deal with the inflation problem later.

Of course dealing with inflation after it becomes imbedded may be another equally intransigent problem.

What this world needs in a good 2 cent dollar

2008-12-17T17:33:00.000-08:00

Dec. 17 (Bloomberg) -- The world’s biggest currency-trading firms say the dollar’s appeal as a haven amid the financial crisis all but evaporated.

The U.S. currency slid to a 13-year low against the yen today and had its biggest one-day decline versus the euro after the Federal Reserve reduced its target interest rate yesterday to a range of zero to 0.25 percent, the lowest among the world’s biggest economies. CMC Markets said today the currency’s prospects appear “ominous.” State Street Global markets said the dollar’s outlook has been “undermined.”

“The dollar has been under heavy downward pressure,” said Robert Minikin, a senior currency strategist in London at Standard Chartered Bank Plc. “This move is very well-justified and has a long way to run.” Standard Chartered is preparing to cut its dollar forecasts, Minikin said.

Yesterday’s rate cut brings the Fed’s target to below the Bank of Japan’s for the first time since January 1993. U.S. policy makers repeated plans to buy agency debt and mortgage- backed securities and said they will study buying Treasuries, a policy known as quantitative easing.

The dollar fell to 87.14 yen, the lowest since July 1995, before trading at 87.45 yen as of 3:51 p.m. in New York, from 89.05 yesterday. It depreciated to $1.4437 per euro from $1.4002 and traded at $1.4366, the weakest since Sept. 30.

‘Ominous’ Outlook

The dollar is likely to decline “longer term,” analysts including New York-based Ashraf Laidi at CMC Markets wrote in a report. “Prospects ahead appear particularly ominous for the world’s reserve currency once global economic stability starts to build up.”

The Fed’s debt purchases will cause the dollar to weaken to $1.4860 per euro, analysts led by Robert Sinche, New York-based head of global currency strategy at Bank of America Corp., wrote in a report yesterday. The Fed reduced the scarcity of dollars and investors slowed the deleveraging process, which drove the currency to a 2 1/2-year high against the euro in October, Sinche said.

“Those temporary supports for the dollar appear to have eroded,” Sinche wrote. “Aggressive quantitative easing by the Fed should add to U.S. dollar supply globally and undermine the value of the dollar.”

State Street Global Markets, a unit of the world’s largest money manager for institutions, said the Fed’s move is “perilous” for the dollar as investors accumulated an “extreme” long position on the currency, or bets it will climb.

Record Low Yields

“This implies a significant potential for a dollar unwind if the real money community attempts to chase price,” Hong Kong-based strategist Dwyfor Evans wrote today in a report. The shift toward quantitative easing “has undermined the U.S. dollar significantly over recent weeks.”

The dollar’s decline against the euro compares with a similar move in the early 1990s, indicating the U.S. currency may weaken to a record low of $1.65 late next year, Citigroup Inc. strategists Tom Fitzpatrick in New York and Shyam Devani in London wrote in a research note.

“If it walks like a duck and talks like a duck … it’s a duck,” Fitzpatrick and Devani wrote. “The dollar walks and talks like a currency going back into its bear market.”

The dollar declined 11 percent against the euro and 8 percent against the yen this month as yields on two-, five-, 10- and 30-year Treasuries fell to record lows, encouraging investors to look outside the U.S. for higher returns.

“The dollar is going to struggle while it has low yields,” said Roddy MacPherson, the Edinburgh-based head of currency strategy at Scottish Widows Investment Partnership Ltd., which manages the equivalent of $152 billion. “We’re looking to add to our short dollar position if U.S. yields continue downward.”

UBS Stays Bullish

MacPherson said he moved toward a short dollar position, or a bet it will depreciate, against the euro in the past four days. The currency may end next year at $1.40 per euro, he said.

For UBS AG, the world’s second-largest foreign-exchange trader, demand for cash amid the freeze in bank lending will support the currency. The Libor-OIS spread, a gauge of cash scarcity favored by former Fed Chairman Alan Greenspan, was at 140 basis points today, or about 14 times its average in the five years before the credit crisis began.

“There is still a premium on liquidity, which will be supportive to the dollar even in the current environment,” said Geoff Kendrick, a senior strategist in London at UBS.

Goldman Sachs Group Inc. said investors can profit from the dollar’s decline by selling the currency for its Canadian counterpart.

The U.S. currency’s drop is becoming “broader-based,” Jens Nordvig, a New York-based strategist for the U.S. securities firm, wrote today. “Temporary dollar demand from deleveraging and funding flows has come to an end. The prospect of aggressive quantitative easing is starting to have a significant negative impact on the dollar.”

US $ Down the Toilet, NZ Report

2008-12-17T14:08:00.001-08:00

Norway Safest Government Debt

2008-12-17T09:55:00.000-08:00

Norway safest govt debt investment, Ecuador riskiest -study
Tuesday, December 16, 2008 2:14:06 AM (GMT-08:00)
Provided by: Reuters News

LONDON: The country least likely to default on its sovereign debt in the next five years is Norway and the country most likely to is Ecuador, according to a study by data provider CMA Datavision.

Using an "industry standard" model and its own credit default swap (CDS) pricing data, CMA Datavision says the cumulative probability of default (CPD) for Norway over the period is three percent, and 93 percent for Ecuador.

The United States’ CPD is six percent, making it the sixth most financially stable sovereign behind Norway, Japan, Germany, France and Finland.

Argentina, Ukraine, Pakistan and Venezuela all have a CPD of 80 percent or higher, according to the study.

The cost of insuring against governments defaulting on their debt has ballooned in recent months as the global economic downturn has forced them to announce heavy borrowing plans to pay for large-scale fiscal packages of spending and tax cuts.

The CDS rates on US, UK and most euro zone sovereign debt have hit record highs recently. Looking at CDS pricing in isolation, investors are paying more to insure against the UK government defaulting than McDonald’s.

Swiss Gold Rush

2008-12-17T08:54:00.000-08:00

Nervy investors spur rush at Swiss gold refiners
By Arnd Wiegmann and Lisa Jucca
Reuters
Tuesday, December 16, 2008; 9:56 PM

MENDRISIO/ZURICH, Switzerland (Reuters) - Sealed off by grey concrete walls and barbed wire, the workmen in protective glasses and steel-toed boots at this smelter cannot work fast enough to meet demand from the nervous rich for gold.

This refinery near Lake Lugano in the Alps is running day and night as people worried about recession rush to switch their assets into something that may hold its value.

"I have been in the gold business for 30 years and I have never experienced anything like this," said Bernhard Schnellmann, director for precious metal services at the refiner Argor-Heraeus, one of the world's three largest.

"Production has dramatically increased since the middle of the year. We cannot cope with demand," said Schnellman, wearing a gold watch on his wrist.

Spot gold hit a record $1,030.80 an ounce on March 17. It fell below $700 in late October, partly because investors sold their holdings to cover losses in equity and bond markets hit by the credit crisis, and is now around $830 an ounce.

The trigger for the price to rise again could come from a much weaker dollar, making gold cheaper for holders of other currencies, and a renewed aversion to paper assets as governments and central banks pump large amounts of cash into the economy, stoking inflation.

Smoke billows as the molten gold, like glowing butter, is poured. To cool it, the worker drops it into water. It hisses as it hits. Once hardened in moulds, the gold bars are embossed with the refinery's seal. Workers wearing white gloves stack them into boxes like domino pieces.

Though Switzerland is not a gold miner, it is home to some of the world's largest refineries, which process an estimated 40 percent of all newly mined gold.

Argor-Heraeus is part-owned by the Austrian Mint and a subsidiary of Germany's Commerzbank. Commercial and central banks are its chief customers and it says it processes some 350-400 tonnes of gold and 350 tonnes of silver per year.

Customers buying gold bars, which can weigh more than 10 kg each, have to wait roughly a month, taking into account the year-end holiday season.

For those buying coins or ingots, which can fit into the palm of a hand, the delay is six to eight weeks. A year ago, these small products could be had within a couple of days.

Worries about the banking system globally have boosted worldwide demand for physical gold, the Gold Council said.

"Many (people) are afraid of leaving their money in banks," said Sandra Conway, managing director at ATS Bullion in London, which sells bullion and gold coins to institutions and the retail market.

"It's difficult to quantify, but I would say our turnover over the last three months has certainly doubled compared to the previous three months," she said.

FULL CAPACITY

Other Swiss gold refiners also say business is booming.

"Since the summer we have experienced a sharp rise in demand for certain gold products. The one-kilo bar has become very popular," said Fiorenzo Arbini, in charge of health and safety at Pamp, another large Swiss refiner.

"People used to buy certificates, now they want physical gold."

Schnellmann said the Argor-Heraeus smelter is operating at full capacity, three eight-hour shifts a day. Conquering the backlog by hiring is difficult, because each candidate has to undergo a security check.

Gold refiners were established in Switzerland to supply the watch industry and, later, jewelry-makers in Italy.

Switzerland's largest banks stepped in to replace a void in gold trading while the London gold market was shut after World War Two and again during a brief closure in 1968.

The former Soviet Union, another top gold producer, chose Zurich banks to handle most of its gold sales in the 1970s and 1980s.

"Gold has an image of being the asset of last resort. This could be viewed as old-fashioned but this is how enough people with enough money to matter think," said Stephen Briggs, a metals strategist at RBS Global Banking & Markets.

GOLD TOUCH

India, China and the Middle East remain the biggest gold importers, particularly for jewelry. But demand for physical gold has exploded also in Europe, the Gold Council said.

In Switzerland, home to the world's largest private banking industry, demand for gold bars and coins shot up six-fold to 21 tonnes in the third quarter of 2008, more than in any other European country.

Retail investment in gold rose 121 percent in the third quarter of 2008, an important contributor to the overall increase in global demand, the Gold Council said.

In that period purchases of gold bars by retail investors, who often buy through commercial banks, rose nearly 60 percent, notably in Switzerland, Germany, and the United States.

There was a surge of interest among professional investors shortly after the collapse of Lehman Brothers in September.

Private bank Julius Baer in October launched a fund to invest exclusively in gold bars stored in highly secured vaults in Switzerland.

"The fascination with gold has been there since the beginning of civilization," said Schnellmann. "It cannot be explained: you can't eat gold, you cannot build anything resistant with it and yet people want to hoard it."

CitiBank - No Account Access

2008-12-17T07:33:00.000-08:00

NEW YORK – Customers of New York City-based Citibank have lost access to much of their account information because of a computer outage.

Many of the troubled bank's clients haven't been able to retrieve account details online or by telephone since Tuesday afternoon. Others can access only parts of their account profiles.

Citibank telephone representatives say they don't know what caused the outage but technicians are working to fix it. They've been telling customers to call back after Wednesday morning.

A Citibank spokeswoman hasn't replied to a phone message or an e-mail sent after business hours.

Citibank is a division of Citigroup Inc., which is struggling to survive the global financial crisis with billions of dollars in aid from the government.

Beck on Capitalism

2008-12-16T10:45:00.000-08:00

December 16, 2008 - 13:02 ET

GLENN: From WSC in South Carolina, man, it is always good to be in the South. Welcome to the program. We're glad you're here. We just had a guy call. Dan, do you remember where he was calling from? What city was he calling from? Does anybody know, Sarah?

STU: Cincinnati. He was in Cincinnati but he was actually over the river, Glenn. He was over the river and he was in Kentucky. He was a few miles away from Cincinnati. He just wanted to make sure you knew that, he wasn't in Cincinnati.

GLENN: Yeah, he had to point that out to me. All right. So he's south of the Mason-Dixon line. He's in Kentucky, and he said "Your theory of capitalism is flawed." And I said, how's that? He said, "Well, because in your theory even if, if we play this all out to the extreme," he said, "Even if everybody works as hard as they possibly can, gets all the education that they can, there will still be people working at McDonald's." Whoa. Well, first of all, let me say this. I'm sorry that working at McDonald's is so bad. I'm sorry that honest labor now in this country is so bad. I'm sorry -- I hope this guy never eats at McDonald's because you're taking advantage of the disadvantaged. If you believe that, then by working -- by buying anything at McDonald's, you are helping apparently what is slave labor. You're just furthering the evil clown.

Let me ask you this question: If everybody had the most education and everybody worked hard and there were still people working at McDonald's, should we just then have the government go in and abolish McDonald's? Should there only be Ruth's Chris steakhouses? And even if there were Ruth's Chris steakhouses, wouldn't there still have to be people that wait those tables? This is the insanity of people who embrace socialism.

Gang, I told you a year ago that you were going to wake up one day and your country's going to be different. The country is different. Socialism is there. They have suspended any kind of sanity. They are intentionally now trashing our dollar. There's no way else to explain what's going on. Let me -- for those of you who think that it's so unfair that we have to have people that work at McDonald's, let me ask you this: How many people in this country have started behind the counter at McDonald's? I washed pots and pans; I'm rich now. God bless America. There's nothing wrong with that. There's nothing wrong with it. Only in this country can you become rich and come from nothing. That's the American dream, that you can pursue your dream. Not that you get your dream.

You know, the scariest thing my daughter has ever, ever said to me, and she said this to me and it scared the living daylights out of me because it's what I said. It's one of the reasons why I was an alcoholic and quite honestly a loser for a lot of my life. She said to me, "Dad, I don't think my life is going to work out how I had it planned." I broke into tears. I said, "Honey, you're right. It's not. But that's a good thing. Life never works out the way you planned. It's a journey. It's being able to look at the things that have happened to you and being able to flip them upside down and see them in the proper perspective. There is no bad. There is only things that happen to you, and you choose to make them bad or you choose to grow from there. You choose to learn from your mistakes."

As a guy who refused to learn from my mistakes over and over an over again, you can get so bitter, "Oh, well, I'll never get out. Oh, well, these people are always..." those are loser statements. "They always are trying to keep me down." The only ones that are ever trying to keep you down are not the ones who are saying "Cut the crap." Take everybody out of the path. Let me succeed or fail on my own. Anybody who tries to say, "Oh, well, you need me to help you," that's an enabler. "Oh, you need me."

You know when we really succeed is when we don't need anyone. We choose to engage with others because we know that, man, if I combine my talents with your talents, my self-awareness with your self-awareness, we can really do great things. But when somebody's in a relationship where the other one's like, "Okay, well, you're just too stupid" or you're just whatever, and they are constantly telling you -- remember, what this government is doing is telling you, they are convincing you that you can't do it. That is an abusive relationship! That's mental abuse. If this was a relationship, a husband and a wife and you were the husband or you were the wife and the government was the other spouse and you went to a counselor and you would say to the counselor, "Well, these are the things that my spouse keeps telling me, that I can't do it without them, that I need them, that they'll protect me, that I'm too weak, that I need bailing out, that they'll clear the path," at some point the counselor would look to your spouse and say, "You're abusing them. You are weakening them. You are intentionally implanting that message in their head over and over again constantly 24/7 and you are crippling them." Then the counselor would look to you and say, "Well, now that you know the truth, what are you going to do." And unfortunately, because I see it over and over and over again, the abused always says, "Well, they really do love me and I'm sure they'll change. And they don't mean it that way. And, well, I just don't want to start all over again. Well, I don't know if I can make it on my own. I... I'm better off where I'm at." You know why that happens? People don't like change. No matter how bad it is, they are more afraid of the unknown than the abuse. Don't be afraid of the unknown. That is -- I have to tell you, that's the point, that's the message in the Christmas Sweater, and I see this on a personal level with almost every single person I meet. The people who are not successful are always the ones standing in their own way of success. I meet people -- and I mean this. Every day I meet somebody, whether they are in my industry or somebody else's industry and I meet them and I think to myself, that person is a multimillionaire. Why? Why are they not successful? Why are they struggling? And if I take the time to talk to them, I can see it. They don't believe or they're engaged in some sort of self-destructive behavior. Everybody puts a limit on themselves, and nine out of ten times it's because of arrogance or it's fear. They just think that they're so great, they treat others like garbage. That was my problem for years and years and years, arrogance. But my problem also had the other side: Fear. I was so arrogant because I was so afraid that there wasn't anything real inside of me, and I think most people are like this. They don't think that there's anything really inside of them. They don't think that, "Well, they have these dreams, but those are stupid dreams and I can't talk to anybody about those. I made so many mistakes, I'll never get back, and I'm afraid everybody's going to figure out that I'm really a fraud." All of that stuff is stopping you! And it's all stuff that allows others to have power over you. Don't care anymore. The secret is don't care.

You know, when I'm out on these book signings, I try so hard to listen to the spirit, I try so hard. I look, I try to at least, I look at everybody in the eye. When you come to meet me, we only usually have about five seconds, but I try to really look you in the eye for as long as I can and I can feel it. People break their eye contact from me so fast, and I wish I could just say, "You, go stand on the other side." When they come by, I can see it. They break their eye contact. Some people don't even make contact. They will glance up real quick, but they won't really make eye contact. And I just want to say to them, "You, go stand behind me. I'm going to spend 15 minutes with you afterwards." Because I can tell the ones that don't believe in themselves or are hurt or something is going on inside of them that they don't want to look because they know. It's like they -- whether it's subconscious or not, they can't handle somebody looking in their eye because they know that that person, they think that person's going to be able to see who they really are, and who they really are is not very good. And that's a lie! I can see it in people's eyes. I can see it when they come by and they are the first ones that they are looking at me in the eye before I am and they are walking away and they are turning their body and they are still walking away and they are still looking me in the eye. That person has what they need. But they are afraid. Most people are afraid, and I know. Because you don't know what it is that's inside of you.

Let me tell you what's inside of you: Peace. Happiness. There may not be success in the worldly sense, but that's what's so screwed up about our country right now. Jeez, didn't we learn this on September 11th? Success wasn't money. It wasn't a bigger house. It wasn't a bigger television. Success was happiness. Success was family. The big thing I struggle with, the hardest thing for me to do is to be with my children. It really is. I don't know how to be a good dad. I don't. I struggle with it every single day. But let me tell you something: I'm gonna do it. I spend time with my kids, and my kids know it.

Gold n Comex

2008-12-15T18:03:00.000-08:00

Once again the gold banks stole your golden candy. They will do it again tomorrow and continue until they really have to trade real gold.

My question to the most financially able among you is as follows:

Have you had enough of the daily short side manipulation carried on by the same people blatantly on the floor of the make believe gold paper gold exchange, the COMEX? Over the weekend they thumbed their noses at you in an article concerning the increase in delivery taking. The COMEX member quoted laughed at us saying they had a warehouse of $8 billion that was too big to feel any effort to take delivery.

Maybe Madoff didn’t know about the COMEX. $8 billion in today’s world is chump change, however the chumps at the evil COMEX can’t count the amount of fingers they have.

To our most financially able readers, those who have all the physical gold they want, it only takes 21,000 one hundred ounce bars taken delivery of and removed from the COMEX to convert that market to a cash market from a make believe no gold, paper gold market and price maker.

STOP THE COMEX.

The Rich Pawns

2008-12-15T13:13:00.000-08:00

BEVERLY HILLS, Calif./PHOENIX (Reuters) - Whether it's a Tiffany diamond or a three-year-old lawnmower, more and more Americans from all social classes are pawning their possessions to make ends meet.

Pawn shop owners see strong business across the country, even in unexpected locales like Beverly Hills, the mecca of luxury living and shopping.

"Banks aren't lending so people are coming here for short-term loans against collateral like diamonds, watches and other jewelry," said Jordan Tabach-Bank, CEO of Beverly Loan Co, self-described "pawnbroker to the stars."

"I do see my share of actors, writers, producers and directors," he said, but also cited more visits from white-collar professionals and especially business owners struggling to meet payroll obligations.

"We still do the five-, six-figure loans to Beverly Hills socialites who want to get plastic surgery, but never have we seen so many people in desperate need of funds to finance business enterprises," he added.

In the 70 years of the family business, Beverly Loan, which usually charges 4 percent monthly interest on loans, has never loaned so much as it has in the past few months, he said.

"We're a lot easier to deal with than a bank," he said from his office on the third floor of a Bank of America building near Rodeo Drive. An armed security guard watches over the reception, where case after case is filled with precious gems.

It's less glamorous at Mo Money Pawn, located in the grimy area of central Phoenix, where struggling building contractor Robert Lane waited for the shop to open its doors so he could pawn a table saw he bought for $900.

"It's to get ahead and pay off some of the bills," he says standing outside the store, where he hoped to get $300 for a cherished workshop tool he now rarely uses as work dries up.

MORTGAGE BROKERS AT PAWNBROKERS

There are as many as 15,000 pawnbrokers across the United States. As the U.S. recession deepens, pawnbrokers -- long seen as a lender of last resort -- are noting a rise in business.

No national body keeps statistics for the sector, but proprietors across the spectrum say they are thriving as home foreclosures spiral and bank credit remains scarce.

"Business is good," Mo Money owner Eric Baker said. The store, which makes loans on anything from a motor home to guns to lawnmowers and jewelry, says turnover is up by around 20 percent over a year ago on a broader range of clients.

"You are seeing some bigger stuff, you're seeing some people you probably wouldn't have seen," he said.

Newer clients include struggling contractors like Lane, as well as cash-strapped real estate, land and mortgage brokers, seeking loans, which are pegged by state law at 22 percent over 90 days.

"They are coming in with the houseboats, the quads, the Harleys... The toys they can live without, sitting in the garage," Baker said, sitting in his office at the store, where several of the staff have pistols holstered in their belts.

Across town, William Jachimek, a 25-year veteran of the trade, said cash-strapped mortgage brokers started coming in about a year ago and now account for 10 percent of business.

"We had one mortgage broker who pawned his wife's jewelry and their Viking oven," says the owner of five pawn shops who takes "everything that can be sold on E-bay" as collateral.

Business is up 20 percent on last year at Mo Money Pawn, and seven percent at Pawn Central, Jachimek's flagship store. Nevertheless, a growing number of customers are defaulting on loans, creating some uncertainty.

"It's really good from the aspect that we're taking stuff in and your money is making money while it's out there. But, on the other side, a lot of people are not picking stuff up," Baker said.

Pawnbrokers said it was getting harder to turn over items and unsold merchandise is mounting. Back in Beverly Hills, Tabach-Bank said defaults were up a bit, but still only about 5 percent. "Unlike banks, we are able to work with our customers," Tabach-Bank said. "We're not the kind of pawn shop that cuts you off the day your loan comes due."

Dollar Collapse within 30 Days?

2008-12-15T11:06:00.000-08:00

Latest on Gold Backwardation

2008-12-15T05:56:00.000-08:00

The Market Oracle reports about Gold Backwardation Shaking The World:

(emphasis mine)

Gold Backwardation That Shook The World
Dec 14, 2008 - 12:29 PM
By: Professor_Emeritus

On Friday, December 12, backwardation on gold was still in force at an annualized discount rate hovering around 2% in the December contract, and 0.3% in February contract. Many readers have asked me how it is that so many other observers fail to see the backwardation. The discrepancy is due to differences in methodology. Most analysts calculate the basis as the difference between February and December futures prices which gives them a positive reading. They use the December futures price as proxy for the spot price. This is clearly wrong. The December futures price is not the same as the spot price, even though we are in December.

My methodology is to calculate the basis as the difference between the asked price for the December futures and the bid price for spot gold. The logic behind this is that if you wanted to transfer your costs of carrying gold to the futures market, then you would have to sell physical at the bid price of spot gold and buy it back at the asked price of the December futures.

The opportunity cost of carrying physical gold is known as the carrying charge . It covers interest, insurance, cost of storage, and all other incidental costs including taxes and fees, if any. The carrying charge is the upper bound of the range within which the gold basis can vary. Holders of gold would never allow the basis to exceed the carrying charge. If it did, they would keep selling cash gold and replace it with gold futures until their arbitrage would eliminate excess contango.

Exactly the same theoretical argument can be used to prove that the basis cannot go negative. And, indeed, it never has for more than a few hours that it takes to send out a wake-up call to alert sleeping arbitrageurs.

That is to say, the gold basis has never gone negative -- until December 2, 2008. On that ill-starred day gold went to backwardation for the first time ever in history, and got stuck there. This gave rise to a controversy that is still raging. What is the significance of this event? The majority of observers shrugged: so what? Others, including the present writer, warned of the extremely serious consequences threatening the international monetary system and the world economy because of the highly corrosive nature of the backwardation in gold.

Why is it that the same theoretical argument is foolproof in the case of full contango, but it is fallacious in the case of backwardation? The reason is that full contango in gold (maximum reading on the gold basis) implies full public confidence in fiat money; backwardation (minimum reading on the gold basis) implies the collapse of public confidence in fiat money.

Let us put this into context. We have had a strange and ominous phenomenon lasting well over three decades which mainstream economists have been utterly unable (unwilling?) to explain. When gold futures started trading in the United States in 1975, the gold basis was close to full contango. Since that time it has shown a stubborn falling tendency, steadily increasing its deviation from the carrying charge.

This is as if, after a brief honeymoon in 1975, holders of physical gold started to go on strike in ever greater numbers, refusing to take the ever increasing wage offers on the bargaining table. They would rather go without any wages at all.

Of course, strikes are not out of the ordinary, so the phenomenon of the vanishing gold basis could be, and was, swept under the rug. Mainstream economists could still lull themselves in the belief that the gold basis would never go negative. Come to think of it, if it ever did, it would be the equivalent of employers offering to take over from the unions the responsibility of making strike-pay available to workers on the picket line. Now, there, such a thing would truly be unheard-of!

Yet, surprise, surprise, it has now happened, although not in industrial but in monetary relations. Holders of physical gold, now on fully-fledged strike, are offered a strike-pay by the futures market, and the offer is left on the bargaining table, but the strikers still won't budge. There it is: the gold basis went negative, gold has been in backwardation for over a week, and physical gold is still not coming out of hiding.

In spite of all the propaganda aimed at discrediting me and my theory of gold backwardation, what we are hearing is the shrill sound of the fire-alarm indicating that the house of the international monetary system is on fire. For many a year I have been warning all those who cared to listen that such a fire-alarm was coming sooner or later, and the consequences of ignoring it would be disastrous. Well, it is sounding loud and clear now, and guess what. Fire-fighters brazenly ignore it. Yet you can ignore it at your own peril.

What does it all mean? Not only does it mean that the market is willing to pay all your carrying charges involved in holding physical gold, but it is also willing to pay you (allegedly) risk-free profits for the privilege of relieving you from carrying the burden! "Let me take over your yoke just for a few days; I shall pay you handsomely for the honor" - so the clearing members of Comex plead.

It is as if the bank was paying all your utility bills without charging it to your account. Nay, the bank is actually offering you a bonus for you allowing it to do you the favor. Suppose, for the sake of argument, that all the banks in the world offered all their account holders to take over responsibility for paying their utility bills. Would it not evoke some searching questions about the hidden agenda of the banks? Wouldn't people become extremely suspicious of the preposterous offer? Yet here we go, the futures market in gold, the world's residual source of cash gold, is making the same preposterous offer, and nobody is asking questions. Timeo Danaos et dona ferentes (I fear my enemies most when they bring me gifts, Virgil , Aeneid, II. 49.)

I warn the world again that the futures market would not go to backwardation in gold if the house of paper money were not on fire. There is just no prima facie reason for a shortage in physical gold. A very large part of all the gold produced throughout history still exists in monetary form, sitting in vaults doing nothing. (Under the gold standard it used to be doing heavy-duty work in financing production and world trade.) Unlike all other commodities with the exception of silver, for gold the stocks-to-flows ratio is a high multiple (by contrast, the stocks-to-flows ratio of copper is a small fraction). And, on the top of privately held gold, there is central bank gold amounting to one quarter of all the gold ever produced since the dawn of history. Why are central banks unwilling to take advantage of risk-free profits by releasing gold? Could it be that, in possession of inside information, they have reason to be afraid that the regime of irredeemable currency may soon collapse and, with their gold gone, they don't want to be left holding the bag? Could it be that the Babeldom of the debt tower is already crumbling, but the fact is being covered up?

There is simply no explanation for the backwardation in gold, absent monetary science. And since monetary science has been exiled from the world's universities for the past fifty years (this is what I call "Lysenkoism -- American style", see References below), people are dumbfounded. They don't understand the phenomenon of holders of gold passing up the opportunity to earn risk-free profits.

Monetary science gives a clear and unambiguous explanation. Here it is, and please remember that you have heard it here first. We are facing a pathology of the international monetary system based, as it is, on irredeemable promises to pay. People are enjoined through 'legal tender' legislation to use these irredeemable promises as if they were the ultimate means of payment, even though they are not, and the world would rather use gold and silver as the natural and ultimate extinguisher of debt. But gold and silver have been coercively eliminated from monetary circulation for the competition they offered to synthetic debt-liquidating devices. Mainstream economics pretends that the issue has been settled for once and all. It asserts that liquidation of debt through the coercively maintained payments system has no threat to the national and world economy. Yet what is happening is that the government keeps kicking the toxic garbage upstairs which keeps accumulating unobtrusively in the attic, only to come crashing down in its own good time to cause untold amount of social damage.

In the real world it is natural law, rather than man-made coercive laws, that prevail. The pathology of the regime of irredeemable currency has not been attended to, and day of reckoning has dawned. Our pathological monetary system has allowed the burgeoning of debt beyond all rhyme and reason. It has no mechanism to extinguish debt. It pretends that transferring debt to the banks, and ultimately to the government, is tantamount to extinguishing it. However, the truth of the matter is that only gold circulation is able to extinguish debt. When it is stopped in its tracks, as it is under conditions of backwardation, debt explodes.

The debt tower is toppling. Central banks work overtime printing money to plug the holes in the leaky foundation, but their traction that they could once take for granted is gone. The money they print goes into either gold hoarding or into government bonds. The monetary system has short-circuited and is in the process of burning out. Practically no money is going into the production of goods and services. The bloated economy is contracting fast. Great Depression II is upon us. The monetary system is past the point of repair. This is the story that the backwardation of gold is trying to tell those of us who have ears for hearing and brains for comprehending.

Backwardation in gold is the sweet siren song that is trying to tempt Odysseus to his doom. But Odysseus was smart enough to have himself tied, fist and foot, to the mast and had the ears of his oarsmen be plugged with wax. His ship is sailing through the dangerous waters without unloading gold.

Backwardation also gives a signal to those who are not so fortunate as to have some of the precious yellow in hand. It tells them to be prepared for a thunderous collapse of the international payments system, worse than the collapse of the twin towers of the World Trade Center. Backwardation means the inevitable contraction of the world economy, the beginning of an era of diminishing enterprise and employment, an era of snowballing business failures and poverty. Printing more irredeemable promises to pay will make this condition worse, not better.

* * *

It can be seen that the $80 rise in the spot price from $740 to $820 during the week that just ended has not been able to compel holders of spot gold to exchange their holdings for a promise to deliver gold a mere 18 days later, the bait of 'risk-free' profit notwithstanding, in spite of the unprecedented discount on gold futures. To tell the truth, the promised profits are not risk free. The risk is that the gold will never be returned and those who have listened to the siren song will be left holding the bag.

Events of last week show the heroic resistance of the bulls: they have so far refused to listen to the sweet siren song of the clearing members. They unearthed the golden hatchet and have not let themselves be led astray from the warpath. On Thursday, December 11, 12,588 contracts in the December futures month (an increase of 139 contracts from the previous day) stood in line waiting for delivery. This is equivalent to 43% of registered gold in the warehouses! As is known, the clearing members have till December 31 to deliver; otherwise they have to declare "liquidation only", effectively closing the gold window. If that happens, it would be a historical first, likely to cause a much bigger stir than the appearance of backwardation on December 2, which caused a yawn . The world would be shaken out of its lethargy. This backwardation would break the grip of the regime of irredeemable currency on the world.

The clearing members have used the carrot to no avail. Will they now use the stick, increasing margins on long positions to exceed the value of the underlying contract? We don't know, but obviously they are hesitant to make a rash decision. Such a move could easily backfire. It would betray their desperation, which could provoke even more notices demanding delivery of physical gold.

Who is going to blink, the good guys or the bad? It is too early to say. At any rate, even if the good guys blink, they will be back in force in February for a showdown to face a much-weakened opponent.

My reaction: Will clearing members be able to deliver the gold by the December 31 deadline? Or will December 2008 be the month where COMEX breaks down?

In any case, gold remains the safest assets. Unlike treasuries, it will retain its purchasing power with or without hyperinflation.

Collapse 09, Bank Holiday

2008-12-14T17:05:00.000-08:00

Silver Backwardation

2008-12-13T07:50:00.001-08:00

What does backwardisation mean for silver?
Filed under: Gold & Silver, US Dollar — peterjcooper @ 10:06 am

Antal E. Fekete, a professor at Intermountain Institute of Science and Applied Mathematics, and frequent writer on precious metals, answers a timely question:

Q: People from around the world keep asking me what advance warning for the collapse of our international monetary system, based as it is on irredeemable promises to pay, they should be looking for.

A: My answer invariably is: ‘watch for the last contango in silver’.

It takes a little bit of explaining what this cryptic message means. Contango is that condition whereby more distant futures prices are at a premium over the nearby. The opposite is called backwardation which obtains when the nearby futures sell at a premium and the more distant futures are at a discount.

When contango gives way to backwardation in all contract spreads, never again to return, it is a foolproof indication that no deliverable monetary silver exists.

Silver price hike
Thank you professor! This is really an extension of the argument on this website dating back to before the summer rout of precious metal prices.

Physical stocks are low and the futures price has been distorted by big hedge fund forced-sales - now we are coming to the day of reckoning when the physical shortage starts to determine the spot price, and not the futures market.

The upside - which should have been there all along - will now come back with a vengeance and smash the few remaining shorts. This is likely to be spectacular - but after the culling of bulls recently not all precious metal fans will be there to benefit.

Hedge Fund Fraud $50 Billion

2008-12-12T17:20:00.000-08:00

By Jon Stempel and Christian Plumb

NEW YORK (Reuters) - Investors scrambled to assess potential losses from an alleged $50 billion fraud by Bernard Madoff, a day after the arrest of the prominent Wall Street trader.

Prosecutors and regulators accused the 70-year-old, who was chairman of the Nasdaq Stock Market in the early 1990s, of masterminding a fraud of epic proportions through his investment advisory business, which managed at least one hedge fund.

Hundreds of people, investing with him through the firm's clients, entrusted Madoff with billions of dollars, industry experts said.

"Madoff's investors included captains of industry, corporations -- some of which are publicly traded -- that used Madoff almost as a high-yielding cash management account, endowments, universities, foundations and, importantly, many high-profile funds of funds," said Douglas Kass, who heads hedge fund Seabreeze Partners Management.

"It appears that at least $15 billion of wealth, much of which was concentrated in southern Florida and New York City, has gone to 'money heaven,'" he said.

For a list of companies exposed to Madoff's alleged fraud, please see:

Federal agents arrested Madoff at his apartment on Thursday after prosecutors said he told senior employees that his money management operations were "all just one big lie" and "basically, a giant Ponzi scheme."

A Ponzi scheme is an illegal investment vehicle that pays off old investors with money from new ones, and is dependent on a constant stream of new investment. Because the invested capital is not earning a sufficient return on its own, such schemes eventually collapse under their own weight.

Madoff is the founder of Bernard L. Madoff Investment Securities LLC, a market-making firm he launched in 1960. His separate investment advisory business had $17.1 billion of assets under management.

'BUSINESS AS USUAL?'

About a dozen angry investors gathered on Friday in the lobby of the Lipstick Building in midtown Manhattan, where the market-making firm and advisory business are headquartered, demanding to know the fate of their money.

One woman said that when she called the firm's offices on Thursday she was told it was "business as usual."

Another investor groused, "Business as usual? Of course it's business as usual. We're getting screwed left and right."

Police later evicted the small group from the building.

Individual investors were feeling the squeeze elsewhere.

"I expect to get back zero," said Floridian Susan Leavitt, who invested through Madoff. "When he tells the feds he has $200 million to $300 million left out of billions, what can you expect?"

Two law firms, Milberg LLP and Seeger Weiss LLP, said Friday they had been retained by "dozens of individual investors" in Madoff Securities.

The two most prominent hedge funds that invested with Madoff were the $7.3 billion Fairfield Sentry Ltd, run by Walter Noel's Fairfield Greenwich Group, and the $2.8 billion Kingate Global Fund Ltd, run by Kingate Management Ltd.

Fairfield Greenwich Group said it was trying to determine the extent of potential losses and vowed to pursue recovery of any lost assets. The firm said it had been working with Madoff for nearly 20 years.

Fairfield Sentry and Kingate Global were among a small group of hedge funds to report positive returns for 2008; the average hedge fund was down 18 percent, according to data from Hedge Fund Research.

"People who came to us for portfolio construction were often already invested with Bernie Madoff. He had hundreds of clients," said Charles Gradante, who invests in hedge funds as a principal at Hennessee Group LLC. "Now his whole legacy is destroyed. He was God to people."

Prior to Madoff's arrest, investors had wondered how he was able to generate annual returns in the low double digits in a variety of market environments. Many questioned how U.S. regulators were able to ignore numerous red flags with regard to Madoff's operations.

"Many of us questioned how that strategy could generate those kinds of returns so consistently," said Jon Najarian, an options trader who knows Madoff and is a co-founder of optionmonster.com.

In May 2001, Barron's reported that option strategists for major investment banks said they could not understand how Madoff managed to generate the returns that he did.

"We weren't comfortable with Madoff," said Brad Alford, president at investment adviser Alpha Capital in Atlanta. "We didn't understand how his strategy could generate the kind of returns it did. We will walk away from things like that."

MORE TO COME?

U.S. stocks tumbled in early trading on Friday, with some investors citing the Madoff case as well as the failure of talks in Congress on a rescue for the U.S. auto industry. The market later rebounded, with the Dow Jones industrial average closing 0.75 percent higher for the day.

Investors overseas were reeling from the alleged fraud.

Benedict Hentsch, a Swiss private bank, said it had 56 million Swiss francs ($47 million) of exposure to Madoff's investment advisory business.

Italian bank UniCredit SpA's fund management unit, Pioneer Investments, has exposure through its Primeo Select hedge fund, two people familiar with the matter said.

Bramdean Alternatives Ltd said almost 10 percent of its holdings were exposed to Madoff, sending shares in the UK asset manager crashing.

CNBC Television reported that Sterling Equities, which owns the New York Mets baseball team, had accounts managed by Madoff.

'UNFORTUNATE SET OF EVENTS'

Madoff said "there is no innocent explanation" for his activities, and that he "paid investors with money that wasn't there," according to the federal complaint.

Prosecutors also accused Madoff of wanting to distribute as much as $300 million to employees, family members and friends before turning himself in.

Charged with one count of securities fraud, he faces up to 20 years in prison and a $5 million fine. The U.S. Securities and Exchange Commission filed separate civil charges.

A hearing had been scheduled for Friday afternoon in U.S. District Court in Manhattan on the SEC's request to grant powers to the court-appointed receiver to oversee the entire firm, as well as on the commission's request for a firmwide asset freeze.

But the hearing was canceled after the matter was resolved, said a deputy for U.S. District Judge Louis Stanton. No other details were immediately available. The receiver, lawyer Lee Richards, had been appointed by the judge on Thursday to oversee assets and accounts of the firm held abroad.

Madoff's lawyer, Dan Horwitz, said on Thursday: "We will fight to get through this unfortunate set of events." His client was released on $10 million bond.

Madoff is a member of Nasdaq OMX Group Inc's nominating committee. His firm has said it is a market-maker for about 350 Nasdaq stocks.

He is also chairman of London-based Madoff Securities International Ltd, whose chief executive, Stephen Raven, said the firm was "not in any way part of" the New York-based market-maker.

All equity trades involving the market-making firm will be processed as usual, the Depository Trust Clearing Corp told Reuters on Friday.

Jim Roger Says Most Big US Banks Bankrupt

2008-12-12T08:00:00.000-08:00

NEW YORK (Reuters) - Jim Rogers, one of the world's most prominent international investors, on Thursday called most of the largest U.S. banks "totally bankrupt," and said government efforts to fix the sector are wrongheaded.

Speaking by teleconference at the Reuters Investment Outlook 2009 Summit, the co-founder with George Soros of the Quantum Fund, said the government's $700 billion rescue package for the sector doesn't address how banks manage their balance sheets, and instead rewards weaker lenders with new capital.

Dozens of banks have won infusions from the Troubled Asset Relief Program created in early October, just after the Sept 15 bankruptcy filing by Lehman Brothers Holdings Inc (LEHMQ.PK: Quote, Profile, Research, Stock Buzz). Some of the funds are being used for acquisitions.

"Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said Rogers, who is now a private investor.

"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."

Rogers said he shorted shares of Fannie Mae (FNM.P: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.P: Quote, Profile, Research, Stock Buzz) before the government nationalized the mortgage financiers in September, a week before Lehman failed.

Now a specialist in commodities, Rogers said he has used the recent rally in the U.S. dollar as an opportunity to exit dollar-denominated assets.

While not saying how long the U.S. economic recession will last, he said conditions could ultimately mirror those of Japan in the 1990s. "The way things are going, we're going to have a lost decade too, just like the 1970s," he said.

Goldman Sachs & Co analysts this week estimated that banks worldwide have suffered $850 billion of credit-related losses and writedowns since the global credit crisis began last year.

But Rogers said sound U.S. lenders remain. He said these could include banks that don't make or hold subprime mortgages, or which have high ratios of deposits to equity, "all the classic old ratios that most banks in America forgot or started ignoring because they were too old-fashioned."

Many analysts cite Lehman's Sept 15 bankruptcy as a trigger for the recent cratering in the economy and stock markets.

Rogers called that idea "laughable," noting that banks have been failing for hundreds of years. And yet, he said policymakers aren't doing enough to prevent another Lehman.

"Governments are making mistakes," he said. "They're saying to all the banks, you don't have to tell us your situation. You can continue to use your balance sheet that is phony.... All these guys are bankrupt, they're still worrying about their bonuses, they're still trying to pay their dividends, and the whole system is weakened."

Rogers said is investing in growth areas in China and Taiwan, in such areas as water treatment and agriculture, and recently bought positions in energy and agriculture indexes.

Fed Runs Amuck

2008-12-11T10:18:00.000-08:00

By Craig Torres and Steve Matthews

Dec. 9 (Bloomberg) -- The Federal Reserve’s interest-rate target is getting close to zero, and so is the power of the Fed’s regional bank presidents.

The district chiefs’ authority over borrowing costs has been marginalized in the past two months as Chairman Ben S. Bernanke and the Fed Board of Governors in Washington made their own decisions on emergency measures to flood the economy with cash.

“The Board has usurped authority,” said William Poole, former president of the St. Louis Fed and now a senior fellow at the Cato Institute in Washington. “This dramatic change in policy direction has not been announced or even acknowledged.”

Bernanke must now try to bring the Federal Open Market Committee, which includes district presidents and Fed governors, along as he turns to more radical strategies, such as buying Treasuries to drive down long-term rates. A lack of consensus at next week’s FOMC meeting could result in muddled communication that confuses investors and undermines confidence.

“Whatever our communications problems are now, they are going to be magnified in this new world we are going to be in,” James Bullard, Poole’s successor at the St. Louis Fed, said in an interview. “We have a bunch of analysis in the works right now. Frankly, I am mulling it over myself.”

Yields on 10-year Treasuries this month slid to the lowest level since at least 1962, in anticipation of Fed purchases and weaker growth. The notes yielded 2.73 percent at 10:32 a.m. in New York, compared with an average of 4.70 percent in the past decade.

Forgoing a Vote

A conference call last month showed how little say the central bank’s 12 regional presidents now have in some of the Fed’s biggest decisions.

The regional bank chiefs were invited to listen as officials in Washington outlined their decision on a new $600 billion program to help the housing market. The presidents weren’t asked to vote on the initiative, even though it aimed at cutting borrowing costs, something they vote on in regular FOMC meetings.

“If I am a regional Fed bank president, I have had my power diminished a lot,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York, who used to work at the New York Fed. “I think of it as war powers for the Board of Governors.”

Many of the new facilities have been studied and recommended by the New York Fed, whose president, Timothy Geithner, is the vice chairman of the FOMC. Geithner, President-elect Barack Obama’s nominee to be Treasury secretary, is leaving the FOMC and will be replaced at the Dec. 15-16 meeting by Christine Cumming, the New York Fed’s first vice president.

Emergency Powers

Regional bank presidents don’t have a vote when the Board uses emergency powers to lend to firms other than banks in “unusual and exigent circumstances,” as it’s done repeatedly this year.

The district-bank chiefs by design are supposed to offer a counterbalance to the Board, and in the past haven’t been shy about challenging chairmen. In February 1994, former chairman Alan Greenspan had to argue against four presidents who wanted to raise rates at least a half percentage point, compared with his own preference for a quarter-point move.

Greenspan worried about the effect on markets of an abrupt move, transcripts of FOMC discussions showed. He said he “also would be concerned if this committee were not in concert. If we are perceived to be split on an issue as significant as this, I think we’re risking some very serious problems in this organization.”

Fed’s Strategies

The Fed has deployed two main strategies during the current credit crisis. The FOMC, which currently includes five governors and five presidents, has lowered its benchmark federal funds rate target by 4.25 percentage points since September 2007.

Acting separately, the Board of Governors has provided emergency funding to gridlocked markets and troubled institutions such as American International Group Inc. that were on the brink of failure. Those actions have made the key rate less relevant as a tool of policy, because they’ve driven down the overnight lending rate between banks below the target set by the FOMC.

While the target is 1 percent, the effective federal funds rate averaged 0.33 percentage point in the past week.

“The federal funds rate is trading persistently below target,” said Poole, who is a contributor to Bloomberg News. “That can’t be an accident.”

With its new $600 billion program, the Fed has stepped out of its traditional role of backstop liquidity provider, making a direct effort to manipulate long-term mortgage rates. Some presidents are wary of any strategy that appears to subsidize debtors by pushing rates below yields set by the market.

Allocating Credit

“Central bank lending policies should avoid straying into the realm of allocating credit across firms or sectors of the economy,” Philadelphia Fed President Charles Plosser said Dec. 2.

Richmond Fed President Jeffrey Lacker warned last week that officials should avoid any plan that would have the central bank pay for a fiscal stimulus. Obama has put an economic recovery program at the top of his agenda when he takes office Jan. 20. Lawmakers in Congress have suggested that the size of such a program may be between $500 billion and $700 billion.

“I personally do not believe the Fed should tie asset purchases to any specific fiscal programs, whatever their merits,” Lacker said after a speech in Charlotte, North Carolina, Dec. 3. At the same time, he said he was open to purchasing U.S. government debt for the purpose of fighting the danger of deflation.

FOMC Meeting

At next week’s meeting, Board officials will likely propose ways to lower longer-term interest rates so mortgage and corporate borrowers can borrow more cheaply. Bernanke said in a Dec. 1 speech the Fed could purchase Treasury or agency securities in “substantial quantities.” District presidents may simply be asked to support and expand on what the Board has already done.

“The Board’s importance has grown at the expense of the FOMC,” said Dino Kos, former markets director at the New York Fed and now managing director of research firm Portales Partners LLC. “The FOMC meeting itself is going to become a very uncomfortable place if people don’t know what they are there for. Institutional issues are at stake.”

Gold Coins 2 Month Wait

2008-12-11T06:08:00.000-08:00

Jim Sinclair on 1929-32

2008-12-10T15:08:00.000-08:00

From the Dow Jones high in 1929 it took until 1932 to establish the absolute low. From the establishment of that low point in 1932 low it took 35 years to regain the 1929 high (1954).

It was no coincidence that Roosevelt went to fiscal stimulation in 1932 – 1933 in the form of jobs creation by proxy, such as the Civil Conservation Corp (CCC) and other make work programs. Roosevelt proposed conservation and other work programs as the means of unemployment relief during the 1932 presidential campaign. Senate Bill 5.598, the Emergency Conservation Work Act; was signed into law on March 31, 1933. This initiative is still on the books, having not been funded since 1941.

This is why liberal President Elect Obama will embrace fiscal stimulation with a vengeance, possibly as soon as at the Swear In Ceremony.

I am told that $1 trillion is only for starters.

Today is so different in substance than 1929 - 1932 even if it is a mirror image in unfolding chapters.

Monty is spot on regarding the total final cost of the Sin of OTC derivatives, saying that it will reach only $20 trillion if we are lucky.

CONSEQUENCES my friends. Consequences cannot be avoided.

While the Fed and Treasury take their lead into action from what went wrong with 1929 anti deflationary policies, no one is considering the consequences of their present economic acts that will go infinitely more wrong than any boo-boo in the 1929-1932 period.

Gold is going much higher than $1650. Alf Fields is right in his studies. My estimate of $1650 that I have held since 2000 is terribly conservative.

Be strong. Stop looking for why you are wrong and start knowing why we are right.

Bert Seligman taught me a simple truth:

“The weak succumb, the strong survive.”

Be strong in your commitment. Don’t let some wackjob with a second hand laptop and a bottle of cheap gin cause you to lose sleep.

Prepare

2008-12-10T06:43:00.000-08:00

Gold Backwardation

2008-12-09T18:15:00.001-08:00

Hyperinflation, Gold & Silver Theft

2008-12-09T14:33:00.000-08:00

FT Editorial, One World Government

2008-12-08T20:37:00.000-08:00

I have never believed that there is a secret United Nations plot to take over the US. I have never seen black helicopters hovering in the sky above Montana. But, for the first time in my life, I think the formation of some sort of world government is plausible.

A “world government” would involve much more than co-operation between nations. It would be an entity with state-like characteristics, backed by a body of laws. The European Union has already set up a continental government for 27 countries, which could be a model. The EU has a supreme court, a currency, thousands of pages of law, a large civil service and the ability to deploy military force.

So could the European model go global? There are three reasons for thinking that it might.

First, it is increasingly clear that the most difficult issues facing national governments are international in nature: there is global warming, a global financial crisis and a “global war on terror”.

Second, it could be done. The transport and communications revolutions have shrunk the world so that, as Geoffrey Blainey, an eminent Australian historian, has written: “For the first time in human history, world government of some sort is now possible.” Mr Blainey foresees an attempt to form a world government at some point in the next two centuries, which is an unusually long time horizon for the average newspaper column.

But – the third point – a change in the political atmosphere suggests that “global governance” could come much sooner than that. The financial crisis and climate change are pushing national governments towards global solutions, even in countries such as China and the US that are traditionally fierce guardians of national sovereignty.

Barack Obama, America’s president-in-waiting, does not share the Bush administration’s disdain for international agreements and treaties. In his book, The Audacity of Hope, he argued that: “When the world’s sole superpower willingly restrains its power and abides by internationally agreed-upon standards of conduct, it sends a message that these are rules worth following.” The importance that Mr Obama attaches to the UN is shown by the fact that he has appointed Susan Rice, one of his closest aides, as America’s ambassador to the UN, and given her a seat in the cabinet.

A taste of the ideas doing the rounds in Obama circles is offered by a recent report from the Managing Global Insecurity project, whose small US advisory group includes John Podesta, the man heading Mr Obama’s transition team and Strobe Talbott, the president of the Brookings Institution, from which Ms Rice has just emerged.

The MGI report argues for the creation of a UN high commissioner for counter-terrorist activity, a legally binding climate-change agreement negotiated under the auspices of the UN and the creation of a 50,000-strong UN peacekeeping force. Once countries had pledged troops to this reserve army, the UN would have first call upon them.

These are the kind of ideas that get people reaching for their rifles in America’s talk-radio heartland. Aware of the political sensitivity of its ideas, the MGI report opts for soothing language. It emphasises the need for American leadership and uses the term, “responsible sovereignty” – when calling for international co-operation – rather than the more radical-sounding phrase favoured in Europe, “shared sovereignty”. It also talks about “global governance” rather than world government.

But some European thinkers think that they recognise what is going on. Jacques Attali, an adviser to President Nicolas Sarkozy of France, argues that: “Global governance is just a euphemism for global government.” As far as he is concerned, some form of global government cannot come too soon. Mr Attali believes that the “core of the international financial crisis is that we have global financial markets and no global rule of law”.

So, it seems, everything is in place. For the first time since homo sapiens began to doodle on cave walls, there is an argument, an opportunity and a means to make serious steps towards a world government.

But let us not get carried away. While it seems feasible that some sort of world government might emerge over the next century, any push for “global governance” in the here and now will be a painful, slow process.

There are good and bad reasons for this. The bad reason is a lack of will and determination on the part of national, political leaders who – while they might like to talk about “a planet in peril” – are ultimately still much more focused on their next election, at home.

But this “problem” also hints at a more welcome reason why making progress on global governance will be slow sledding. Even in the EU – the heartland of law-based international government – the idea remains unpopular. The EU has suffered a series of humiliating defeats in referendums, when plans for “ever closer union” have been referred to the voters. In general, the Union has progressed fastest when far-reaching deals have been agreed by technocrats and politicians – and then pushed through without direct reference to the voters. International governance tends to be effective, only when it is anti-democratic.

The world’s most pressing political problems may indeed be international in nature, but the average citizen’s political identity remains stubbornly local. Until somebody cracks this problem, that plan for world government may have to stay locked away in a safe at the UN.

Gold Backwardation on Comex

2008-12-07T17:13:00.000-08:00

Last week, I went over how Gold Backwardation had started in forward offered rates. This week, backwardation has spread to the COMEX itself. Antal E. Fekete from Gold Seek reports about gold backwardation in the future market:

(emphasis mine)

Red Alert: Gold Backwardation!!!
-- Posted Friday, 5 December 2008 Digg This Article Source: GoldSeek.com
Antal E. Fekete
Gold Standard University Live

December 2, 2008, was a landmark in the saga of the collapsing international monetary system, yet it did not deserve to be reported in the press: gold went to backwardation for the first time ever in history. The facts are as follows: on December 2nd, at the Comex in New York, December gold futures (last delivery: December 31) were quoted at 1.98% discount to spot, while February gold futures (last delivery: February 27, 2009) were quoted at 0.14% discount to spot. (All percentages annualized.) The condition got worse on December 3rd, when the corresponding figures were 2% and 0.29%. This means that the gold basis has turned negative, and the condition of backwardation persisted for at least 48 hours. I am writing this in the wee hours of December 4th, when trading of gold futures has not yet started in New York.

According to the December 3rd Comex delivery report, there are 11,759 notices to take delivery. This represents 1.1759 million ounces of gold, while the Comex-approved warehouses hold 2.9 million ounces. Thus 40% of the total amount will have to be delivered by December 31st. Since not all the gold in the warehouses is available for delivery, Comex supply of gold falls far short of the demand at present rates. Futures markets in gold are breaking down. Paper gold is progressively being discredited.

Already there was a slight backwardation in gold at the expiry of a previous active contract month, but it never spilled over to the next active contract month, as it does now: backwardation in the December contract is spilling over to the February contract which at last reading was 0.36%. Silver is also in backwardation, with the discount on silver futures being about twice that on gold futures.

As those who attended my seminar on the gold basis in Canberra last month know, the gold basis is a pristine, incorruptible measure of trust, or the lack of it in case it turns negative, in paper money. Of course, it is too early to say whether gold has gone to permanent backwardation, or whether the condition will rectify itself (it probably will). Be that as it may, it does not matter. The fact that it has happened is the coup de grâce for the regime of irredeemable currency. It will bleed to death, maybe rather slowly, even if no other hits, blows, or shocks are dealt to the system. Very few people realize what is going on and, of course, official sources and the news media won't be helpful to them to explain the significance of all this. I am trying to be helpful to the discriminating reader.

Gold going to permanent backwardation means that gold is no longer for sale at any price, whether it is quoted in dollars, yens, euros, or Swiss francs. The situation is exactly the same as it has been for years: gold is not for sale at any price quoted in Zimbabwe currency, however high the quote is. To put it differently, all offers to sell gold are being withdrawn, whether it concerns newly mined gold, scrap gold, bullion gold or coined gold. I dubbed this event that has cast its long shadow forward for many a year, the last contango in Washington ― contango being the name for the condition opposite to backwardation (namely, that of a positive basis), and Washington being the city where the Paper-mill of the Potomac, the Federal Reserve Board, is located. This is a tongue-in-cheek way of saying that the jig in Washington is up. The music has stopped on the players of 'musical chairs'. Those who have no gold in hand are out of luck. They won't get it now through the regular channels. If they want it, they will have to go to the black market.

I founded Gold Standard University Live (GSUL) two years ago and dedicated it to research of monetary issues that are pointedly ignored by universities, government think-tanks, and the financial press, centered around the question of long-term viability of the regime of irredeemable currency. Historical experiments with that type of currency were many but all of them, without exception, have ended in ignominious failure accompanied with great economic pain, unless the experiment was called off in good time and the authorities returned to monetary rectitude, that is, to a metallic monetary standard. It is also worth pointing out that the present experiment is unique in that all countries of the world indulge in it. Not one country is on a metallic monetary standard, under which the Treasury and the Central Bank are subject to the same contract law as ordinary citizens. They cannot issue irredeemable promises to pay and keep them in monetary circulation through a conspiracy known as check-kiting. Not one country will be spared from the fire and brimstone that once rained on the cities of Sodom and Gomorrah as a punishment of God for immoral behavior.

In all previous episodes there were some countries around that did not listen to the siren song and stayed on the gold standard. They could give a helping hand to the deviant ones, thus limiting economic pain. Today there are no such countries. If you want to be saved, you must be prepared to save yourself.

You cannot understand the process whereby a fiat money system self-destructs without understanding the gold and silver basis. The Quantity Theory of Money does not provide an explanation, because deflation may well precede hyperinflation, as it appears to be the case right now.

For these reasons I placed the study of the gold and silver basis on the top of the list of research topics for GSUL. These can serve as an early warning system that will signal the beginning of the end. The end is approaching with the inevitability of the climax in a Greek tragedy, as the heroes and heroines are drawn to their own destruction. The present reactionary experiment with paper money is entering its death-throes. GSUL has had five sessions and could have established itself as an important, and even the only, source of information about this cataclysmic event: the confrontation of the Titanic (representing the international monetary system) with the iceberg (representing gold and its vanishing basis) as the latter is emerging from the fog too late to avoid collision.

Unfortunately, this was not meant to be: GSUL has to terminate its operations due to a decision made by Mr. Eric Sprott, of Sprott Asset Management, to terminate sponsoring GSUL, saying that "results do not justify the expense."

I sincerely regret that our activities did not live up to the expectations of Mr. Sprott, but I am very proud of the fact that our research is still the only source of information on the vanishing gold basis and its corollary, the seizing up of the paper money system that threatens the world, as it does, with a Great Depression eclipsing that of the 1930's.

Let me summarize the salient points of discussion during the last two sessions of GSUL for the benefit of those who wanted to attend but couldn't. The gold basis is the difference between the futures and the cash price of gold. More precisely it is the price of the nearby active futures contract in the gold futures market minus the cash price of physical gold in the spot market. Historically it has been positive ever since gold futures trading started at the Winnipeg Commodity Exchange in 1972 (except for some rare hiccups at the triple-witching hour. Such deviations have been called 'logistical' in nature, having to do with the simultaneous expiry of gold futures and the put and call option contracts on them. In all these instances the anomaly of a negative basis resolved itself in a matter of a few hours.)

In the commodity futures markets the terminus technicus for a positive basis is contango; that for a negative one, backwardation. Contango implies the existence of a healthy supply of the commodity in the warehouses available for immediate delivery, while backwardation implies shortages and conjures up the scraping of the bottom of the barrel. The basis is limited on the upside by the carrying charges; but there is no limit on the downside as it can fall to any negative value (meaning that the cash price may exceed the futures price by any amount, however large).

Contango whereby the futures price of gold is quoted at a premium to the spot price is the normal condition for the gold market, and for a very good reason, too. The supply of monetary gold in the world is very large relatively speaking. Babbling about the 'scarcity of gold' reflects the opinion of uninformed or badly informed people. In terms of the ratio of stocks to flows the supply of gold is far and away greater than that of any commodity. Silver is second only to gold. It is this fact that makes the two of them the only monetary metals. The impact on the gold price of a discovery of an extremely rich gold field, or the coming on stream of an extremely rich gold mine, is minimal ― in view of the large existing stocks. Paradoxically, what makes gold valuable is not its scarcity but its relative abundance, which evokes that superb confidence in the steadiness of the value of gold that will not be decreased by a banner production year, nor can it be increased by withdrawing gold coins from circulation. For this reason there is no better fly-wheel regulator for the value of currency than gold. The same goes, albeit to a lesser degree, for silver.

Here is the fundamental difference between the monetary metal, gold, and other commodities. Backwardation will pull in stocks from the moon as it were, if need be. The cure for the backwardation of any commodity is more backwardation. For gold, there is no cure. Backwardation in gold is always and everywhere a monetary phenomenon: it is a reminder of the incurable pathology of paper money. It dramatizes the decay of the regime of irredeemable currency. It can only get worse. As confidence in the value of fiat money is a fragile thing, it will not get better. It depicts the paper dollar as Humpty Dumpty who sat on a wall and had a great fall and, now, "all the king's horses and all the king's men could not put Humpty Dumpty together again." To paraphrase a proverb, give paper currency a bad name, you might as well scrap it.

Once entrenched, backwardation in gold means that the cancer of the dollar has reached its terminal stages. The progressively evaporating trust in the value of the irredeemable dollar can no longer be stopped.

Negative basis (backwardation) means that people controlling the supply of monetary gold cannot be persuaded to part with it, regardless of the bait. These people are no speculators. They are neither Scrooges nor Shylocks. They are highly capable businessmen with a conservative frame of mind. They are determined to preserve their capital come hell or high water, for saner times, so they can re-deploy it under a saner government and a saner monetary system. Their instrument is the ownership of monetary gold. They blithely ignore the siren song promising risk-free profits. Indeed, they could sell their physical gold in the spot market and buy it back at a discount in the futures market for delivery in 30 days. In any other commodity, traders controlling supply would jump at the opportunity. The lure of risk-free profits would be irresistible. Not so in the case of gold. Owners refuse to be coaxed out of their gold holdings, however large the bait may be. Why?

Well, they don't believe that the physical gold will be there and available for delivery in 30 days' time. They don't want to be stuck with paper gold, which is useless for their purposes of capital preservation.

December 2 is a landmark, because before that date the monetary system could have been saved by opening the U.S. Mint to gold. Now, given the fact of gold backwardation, it is too late. The last chance to avoid disaster has been missed. The proverbial last straw has broken the back of the camel.

I have often been told that the U.S. Mint is already open to gold, witness the Eagle and Buffalo gold coins. But these issues were neither unlimited, nor were they coined free of seigniorage. They were sold at a premium over bullion content. They were a red herring, dropped to make people believe that gold coins can always be obtained from the U.S. Mint, and from other government mints of the world. However, as the experience of the past two or three months shows, one mint after another stopped taking orders for gold coins and suspended their gold operations. The reason is that the flow of gold to the mints has become erratic. It may dry up altogether. This shows that the foreboding has been evoked by the looming gold backwardation, way ahead of the event. Now the truth is out: you can no longer coax gold out of hiding with paper profits.

If the governments of the great trading nations had really wanted to save the world from a catastrophic collapse of world trade, then they should have opened their mints to gold. Now gold backwardation has caught up with us and shut down the free flow of gold in the system. This will have catastrophic consequences. Few people realize that the shutting down of the gold trade, which is what is happening, means the shutting down of world trade. This is a financial earthquake measuring ten on the Greenspan scale, with epicenter at the Comex in New York, where the Twin Towers of the World Trade Center once stood. It is no exaggeration to say that this event will trigger a tsunami wiping out the prosperity of the world.

My reaction: Even now, gold remains in backwardation. Here are Friday's closing bullion prices from Tulving.com:

Closing Bullion Prices On Friday, Dec. 5, 2008

Gold
$756.00

Silver
$9.55

Platinum
$804.00

Palladium
$163.00

Compare this $756 closing spot price with TradingCharts.com's settling prices of COMEX gold futures contracts:

Month
Session

Click for chart
Open
High
Low
Last
Time
Sett

8-Dec
-
-
-
768.8
Dec 05, 17:21
750.5

9-Jan
750.9
750.9
750.9
764.2
Dec 05, 17:21
750.9

9-Feb
763
765
742
751.8
Dec 05, 17:20
752.2

9-Apr
749
753.7
749
749
Dec 05, 17:20
753.7

9-Jun
755.2
755.2
755.2
768.4
Dec 05, 17:20
755.2

9-Aug
756.8
756.8
756.8
770
Dec 05, 17:20
756.8

9-Oct
-
-
-
771.8
Dec 05, 17:20
758.7

9-Dec
753
760.8
753
753
Dec 05, 17:20
760.8

Notice how contracts all the way out until June are trading at a discount to the spot price of gold? This discount means that physical gold owners could sell their gold for 756 and buy December contracts for 750.9 to take delivery to get their gold back. However, no one is doing this because they fear a COMEX default.

This means that gold owners are . This means we are rapidly reaching the endgame for the dollar.

To understand just how serious and scary this is, check out gold prices on ebay. Even 10 oz gold bars, which typically have the lowest premiums, are trading around $906 per oz, a 20% premium.

What is going to happen next?

Gold is going to disappear. Most gold dealers will stop taking orders. For those dealers that continue to take orders, the will or they will The wait time for shipping the gold will go from weeks into months. Meanwhile, eBay prices for gold will explode, as it will be one of the only venues to acquire physical gold. Open interest on the COMEX will continue to fall as investors lose faith in the gold futures market, and backwardation will push paper gold prices farther down below the spot price until eventual default cause trading in COMEX gold to cease entirely.

Buy physical silver or gold! (if you can find it)

Crash Proof, Peter Schiff

2008-12-06T14:47:00.000-08:00

The Fed and Your Money

2008-12-06T09:23:00.000-08:00

Print Your Own Money

2008-12-05T18:22:00.000-08:00

They may be talking funny money, but it's not funny business.

Residents from the Milwaukee neighborhoods of Riverwest and East Side are scheduled to meet Wednesday to discuss printing their own money. The idea is that the local cash could be used at neighborhood stores and businesses, thus encouraging local spending. The result, supporters hope, would be a bustling local economy, even as the rest of the nation deals with a recession.

"You have all these people who have local currency, and they're going to spend it at local stores," said Sura Faraj, a community organizer who is helping spearhead the plan. "They can't spend it at the Wal-Mart or the Home Depot, but they can spend it at their local hardware store or their local grocery store."

Incentives could be used to entice consumers into using the new money. For example, perhaps they could trade $100 U.S. for $110 local, essentially netting them a 10 percent discount at participating stores.

Related links
Plainfield woman flies U.S. flag upside down to send distress call to leaders
Half-million jobs disappear, worst in 34 years, as economy deteriorates ever more rapidly It's not a new concept—experts estimate there are at least 2,000 local currencies all over the world—but it is a practice that tends to burgeon during economic downturns. During the Great Depression, scores of communities relied on their own currencies.

And it's completely legal.

As long as communities don't create coins, or print bills that resemble federal dollars, organizations are free to produce their own greenbacks—and they'd don't even have to be green.

Invasion of the Bailout Snatchers

2008-12-05T15:23:00.000-08:00

Our recent history has been peppered with a number of foreign invasions. We had the invasion of cheap foreign goods, the invasion of cheap foreign labor, invasion of loony ideas, such as global warming and peak oil and now the invasion of foreign loony ideas, socialism.

While the “Big 3” execs beg for bailout our government has been invaded by banking interlopers praying on the few remaining assets of our once great republic. They have openly paid out Trillions to their friends and conspirators in order to buy out the last remaining wealth of the middle class of America.

Wal-Mart may become the best career move for the vast majority of the former free Americans to provide some assistance to our families. It is my hope all the greeter positions have not been filled and they will pay enough to buy beans and rice.

I do not look forward the near future. My hope is that we can have a reawakening and that God will helps Americans regain our gumption again and rebuilt our economy and government.

Summer Fun With Peter Schiff

2008-12-04T19:03:00.000-08:00

20,00O Troops for Civil Unrest in US -Russian View

2008-12-04T14:38:00.000-08:00

Gold is Available, Gold is Scarce ..

2008-12-04T09:21:00.000-08:00

Jim Sinclair’s Commentary

The Comex tells us gold is easily available, like rain in the summer. The US Mint tells us that real gold is scarce.

The manipulators must be taken out to the shed.

Comrades in Golden Arms, take physical delivery.

Just say NO to these demons that inhabit all our markets. It is time to discipline Sodom and Gomorrah, the COMEX.

MEMORANDUM TO ALL AMERICAN EAGLE AND AMERICAN BUFFALO BULLION COIN AUTHORIZED PURCHASERS
SUBJECT: 2008 and 2009-Dated Bullion Coin Products
November 24, 2008

With the exception of the American Eagle Gold One-Ounce and American Eagle Silver One-Ounce Bullion Coins, all 2008-dated bullion coins have been depleted. Weekly allocations will continue for these two products.

The final 2008 allocation for these coins will be provided on Monday, December 15, 2008.

There will be no bullion allocations during the week of December 22, 2008.

2009-dated American Eagle Gold One-Ounce and American Eagle Silver One-Ounce Bullion Coins will be made available for sale via the standard allocation process on Monday, December 29, for pricing December 30 and order pick-up on Friday, January 2, 2009.

Allocations for these products will continue until the United States Mint is able to meet demand.

The quantities of blanks that we have been able to acquire from our suppliers continue to be very limited, while demand for bullion coins remains high. As a result, it is necessary for the United States Mint to delay the launch of other bullion coins until later in 2009. We will continue to monitor the situation and keep you informed as additional information becomes available.

Thank you for your patience and your continued support of the United States Mint Bullion Coin Program.

The above mentioned coins should not be confused with the American Eagle or American Buffalo collector proof and uncirculated versions sold directly on the Mint?s website. However, these coins are also quickly becoming exhausted, as is evident from the chart of gold and platinum coins listed at U.S. Mint Collector Bullion Coin Prices, Premiums and Sales Figures.

Citigroup's Warning (Glenn Beck)

2008-12-04T05:42:00.000-08:00

GLENN: Welcome to it. I'm glad you're here. This is my favorite season of the year and it's, this is an important time for America to renew herself and to reconnect. Please, please find the real meaning of Christmas this year. Don't make it about the stores and the buying of stuff and everything else. Please use this to reconnect with what the real meaning of Christmas is and that is helping others, serving others, finding yourself, starting all over again. You know, you may lose everything, I may lose everything but we still have each other and we still have our families, and tomorrow we're going to do a special show just on the real meaning of Christmas and I want to tell you some of the amazing stories that I have heard in the last couple of days from people that will, holy cow, if they can do it, you can do it. Overcoming our hardest obstacles. That will be on tomorrow's program.

Now, the reason why I am so impressed and I believe that the clock is ticking and I have a renewed sense of urgency. I want you to listen to this. I want you to listen to this news story. I'm going to read it verbatim and I want to see if any of this sounds familiar. Citigroup says gold could rise over $2,000 next year as the world unravels. Again, Citigroup says gold could rise over $2,000 next year as the world unravels. Gold is poised for a dramatic surge and the blast through $2,000 an ounce by the end of next year as central banks listen carefully as central banks flood the world's monetary system with liquidity. This is according to an internal client note from U.S. bank Citigroup. The bank said that the damage caused by the financial excesses of the last 25 years was forcing the world's authorities to take steps that they had never tried before. This gamble was likely to end in one of two extreme ways, with either a resurgence of inflation and trust me, gang, trust me they're not talking about regular inflation or a downward spiral into Depression, civil disorder and possibly wars. Both outcomes will cause a rush for gold. Quote: They are throwing the kitchen sink at this, said Tom Fitzpatrick. The bank's chief technical strategist. Quote: The world is not going back to normal after the magnitude of what they have done. When the dust settles on this, the world will, it will see that it will either work and the money they have pushed into the system will feed through an inflation shock, or it will not work because too much damage has already been done and we will see continued financial deterioration causing further economic deterioration and the risk of a feedback loop. We don't think that this is the more likely outcome. I do. But each week as it passes and each month passes, there is a growing danger of a vicious circle as confidence erodes. This will lead I'm still quoting from Citigroup: This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders remember, Citigroup is talking about the crazy edges of Europe. But see if any of this sounds familiar. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest starting with strikes because people are feeling disenfranchised, end quote. May the heavens open up and sing praises, hallelujah, finally someone with some credibility is talking about disenfranchisement. Quote: What happens if there is a meltdown in a country like Pakistan, which is a nuclear power? People react when they have their backs against the wall. We're already seeing doubts listen to this: We are already seeing doubts emerge about the sovereign debts of developed AAA rated countries, which is not something you can ignore. So you know, developed AAA rated countries are countries like America. Gold traders are paying close attention to reports from Beijing that China is thinking of boosting its gold reserves from 600 tons to near 4,000 tons in a way to diversify away from paper currencies. What does that mean? Whose paper do they hold? Ours. They hold our currencies. If they are talking about going from 600 tons of gold to near 4,000 tons of gold, they need to sell their currencies and their treasuries. What does that do to the American dollar? "Oh, no one will ever do that because they need us." Everyone is in survival mode. Mr. Fitzpatrick said Britain had made a mistake selling off half its gold at the bottom of the market between '99 and 2000. People have started to question the value of government debt, end quote. Meanwhile, our leaders are saying pay no attention to debt. Meanwhile, the Fed which unbeknownst unfortunately to a lot of people, the ones who hold our treasury notes, the ones who it's backed by the Fed that is a treasury note, a promise the Fed will not release any information on how much gold it holds. The Fed won't allow any accounting on what they actually have. Citigroup said the blastoff was likely to occur within two years and possibly as soon as 2009. Gold was trading yesterday at $812 an ounce. It is well off the all time peak of $1,030 in February, but has held up much better than other commodities over the last few months referring to its historic role as a safe haven store of value and a de facto currency. Gold has tripled over the last three years in value, vastly outperforming Wall Street and European, it says bonuses here but it can't be bonuses, stocks.

Okay, look, here's the thing. Citi does this sound familiar? Does this, have you heard this maybe a year ago from anybody? This is a huge, huge development. This is Citigroup saying this and when somebody like Citigroup says this, it causes a shock to the system. It causes a shock to the market. So hear me clearly. They are not telling you the full truth, just like the President won't tell you the full truth because they know what it means if they panic. They know what it means if they say something that causes people to panic. This is the next level in getting people prepared for what's coming.

Let me go through this piece by piece. Gold could blast through $2,000 an ounce by the end of next year. It is going to blow through. You mark that down, Stu, if we're still on the radio in 12 months, it will go through $2,000 an ounce. The bank says it's caused by the financial excesses of the last 25 years. That is true. The gamble is going to end in one of two extreme ways: Either with a resurgence of inflation they are not talking about inflation. Study the Weimar Republic. They are talking about hyperinflation. You cannot inflate the world's money supply to the point that we have. They are lying to you. They are trying to take this down let's look at them in the best possible light. They are trying to take this system down as slowly as they can so you can prepare, but I'm telling you you are running out of time to prepare. You must prepare your household, you must prepare your children, you must do logical, well thought out things to be able to prepare your family and please do not do them in a panic fashion. I don't tell you these things to panic you. I tell you this with a sense of urgency so you may move with a sense of urgency and it is the same reason why CitiBank is telling you this today. They say it's either going to be inflation or a downward spiral into Depression, civil disorder and possible wars. They are talking about this on a global scale. They don't say that this is the United States but, gang, there's trouble coming. They are throwing the kitchen sink at this. This is what I told you a year ago. I said there's going to come a point to where they're going to open up these valves so far that nothing will react. The stock market won't react, nothing will. And they've got to turn those valves the other way because if they don't turn them the other way and shut this money supply off and do it quickly, you are going to have massive inflation. Well, not only have they not shut those valves off, they've opened them up even more. You cannot do these things. No matter what our arrogance tells us that, "oh, well, we've got it under control; oh, well, this will happen or this will happen," these people are trying to change the course of a hurricane and they're making it worse, unless you prepare. I told you a year ago, I told you when I pulled out of the market, I got a phone call, this is over a year ago and I said I pulled everything out. And I got a phone call and they said, you're telling people to pull out of the stock market, you are only making things worse. I said nobody's listening to me, nobody's listening to me at this point. I'm just telling you what I've done, you make your own decision. But you know what and I prayed about this because I felt I almost felt in a way like a betrayer of my country because I thought, how am I pulling my money out? We need to be able to have jobs, we need to be able to build. And it came to me, there must be someone with something left to be able to restart. You must protect your family. You must protect these things because you're going to need to be able to restart. There's got to be somebody left to be able to say, "Okay, let's pick ourselves back up." The world is not going back to normal. This is a quote: The world is not going back to normal after the magnitude of what they have done. That's Citigroup: The world will not go back to normal after the magnitude of what they've done. This is what I told you three weeks ago when I said the G20 were meeting. I said they're dropping framework. It's a new world order. They know. They know what's coming. They are saying, "We just need to see what we can do." No, they are not. They are dropping in the new world order. If I know it, if my sources are good enough and I'm smart enough, a guy who never took an economics course in my life, can look at all of these things and say, wait a minute, wait a minute, wait a minute, no way out, you're blocking all the exits, you know they do. They see it. This will lead to political instability, and they talk about European countries like Hungary, there is risk of domestic unrest starting with strikes.

Gang, Amy just called in 15 minutes ago. She was a caller. She just called in, and I specifically and I didn't point it out then. I hadn't read this article. I didn't point it out then and I wasn't wildly overt. Anybody who has ears heard. I said, listen to her voice. I said that for a reason, because I want those who are listening, those who have ears to listen and eyes to see. I needed you to hear Amy, a regular person just like you, so angry and so sad on what's happening. She knows it. Americans, your gut is telling you this. Don't dismiss it. Follow your gut. If China would make that one move, no one's lending us any more money. So all of the things that we borrow has to be purchased with something else. You want prescription drugs? Okay, we can't borrow the money from China anymore. We need $500 billion more, half a trillion dollars more for a stimulus package so we can train people to go out and buy a new television set to keep the economy going? No one is going to borrow no one is going to lend us that $500 billion. We're at the end, gang. We're at the end of that game. So how do they pay for it? They print it because governments can do that.

COMEX Advise from Jim Sinclare

2008-12-02T16:36:00.000-08:00

Taking delivery is one thing, but leaving the delivery at the COMEX is another. Leaving the gold at the COMEX warehouse does something but NOT MUCH. In order to level the playing field you must take the delivery OUT OF the COMEX warehouse.

Do not for a moment buy the disinformation that if you take delivery of a 100 ounce gold bar from the COMEX that is has to be re-assayed to sell it. That is DISINFORMATION as it is a COMEX rule put in to dissuade you from, taking delivery out of the warehouse. You get to register bars by serial number in COMEX delivery exactly how you would get from any international bank. Those bars, after examination, will not be questioned in the selling process away from the COMEX.

I am giving you today the cost of storage of gold at the Zurich Airport Free Zone in SEGREGATED FORM. A German Bank purchased this depository with offices in Switzerland. After having checked every international storage point for you, the charges are reasonable. Shipping it there is totally legal. Having valuables in a safe depository is not having a foreign account. Please confirm that point with your tax or general attorney.

You will shortly get the cost of shipment and insurance by Brinks or a similarly rated shipper of valuable as soon as I am able to compare charges to see you are treated as any other professional would be.

Communist Party chief: U.S. on road to Socialism

2008-12-02T07:49:00.000-08:00

Calls Obama 'friend' who will redefine government to favor 'working people'

By Aaron Klein
© 2008 WorldNetDaily

Communist Party USA leader Sam Webb
Sen. Barack Obama is a "friend" of the left who will make important changes to the U.S., including a hoped-for trillion-dollar stimulus package focused on low-income families as well as a reconfiguring of the role and function of the American government and corporations to favor working people, according to the leader of the Communist Party USA.

In a major speech focused on Obama, titled "A Springtime of Possibility," CPUSA leader Sam Webb declared the U.S. is now "on the road to socialism."

Webb defined socialism as a "society that is egalitarian in the rough sense, eliminates exploitation of working people, brings an end to all forms of oppression, and is notable for the many-layered participation of working people and their allies in the management of the economy and state."

In the speech, delivered at the CPUSA's national convention Nov. 15 and posted on the party's website, Webb stated it is "no exaggeration" to call Obama's victory a "sea change."

He referred to last month's election as a "rout of right-wing extremism, a reaffirmation of the decency of our country and people, a leap forward on freedom road and a people's mandate for change.

"A sense of joy, catharsis and renewal is in the air," said Webb. "Expectations are high. A new era of progressive change is waiting to become a reality. If the past eight years of the Bush administration seemed like a winter of discontent, Obama's ascendancy to the presidency feels like a springtime of possibility."

He continued: "The left can and should advance its own views and disagree with the Obama administration without being disagreeable. Its tone should be respectful. We are speaking to a friend. When the administration and Congress take positive initiatives, they should be wholeheartedly welcomed. Nor should anyone think that everything will be done in 100 days. After all, main elements of the New Deal were codified into law in 1935, 1936 and 1937."

During the speech, Webb repeatedly referred to the U.S. as "imperialist." He called on Obama to shrink the military and the country's nuclear weapons arsenal while redefining the role of the U.S. in the global community.

"I mean a reconfiguring of the role and functions of government and corporations so that they favor working people, the racially and nationally oppressed, women, youth, seniors, small business people and other social groupings," Webb clarified.

"Obama wants to be a people's reformer," said Webb. "In time he hopes to make substantive changes in health care, housing, education, retirement security, energy, environment, urban affairs, race and gender relations, foreign relations, and popular participation in public affairs. If the last 30 years was an era of people's retrenchment, Obama sees the years ahead as an era of substantial people's reforms."

Webb called on Obama to push through a trillion-dollar stimulus package:

"The Bush administration doesn't understand this, but the Obama administration does and with congressional support it will take quick action," the communist leader said. "We can expect, and should fully support, an administration stimulus package that includes, among other things, extension of unemployment compensation, assistance to distressed homeowners, aid to states and municipalities, food stamp extension, infrastructure construction, and so forth. The only unresolved question is how large a stimulus package. In our view, it should be the range of a trillion dollars or more."

Thoughts on the US Break Up

2008-12-01T08:41:00.000-08:00

UK to convert to Euro?

2008-11-30T15:17:00.000-08:00

Britain is considering joining the eurozone as a direct consequence of global financial turmoil, European Commission President Jose Manuel Barroso said Sunday.
"We are now closer than ever before. I'm not going to break the confidentiality of certain conversations, but some British politicians have already told me: 'If we had the euro, we would have been better off'," Barroso told a weekly French news programme, referring to the fall in the pound's value since markets and liquidity meltdown earlier this year.

"The British have an enormous quality, one of many, that is they are pragmatic," he said on the panel of a joint RTL-LCI radio and television broadcast. "This crisis has emphasised the importance of the euro, and also of Britain," he added.

"I don't mean this will happen tomorrow, I know that the majority (of British people) are still opposed, but there is a period of consideration underway and the people which matter in Britain are currently thinking about it," the former Portuguese prime minister said.

Barroso pointed to the case of Denmark, another EU state which has so far refused to accept the euro but is now planning another referendum on the single currency. The Danish voted against joining in 2000.

31% of Comex Gold Missing?

2008-11-29T16:07:00.000-08:00

Source : http://www.marketskeptics.com/

Time for more info on the December Comex gold contract. First, Dan Norcini gives us some context on the significance of yesterday's delivery notices:

(emphasis mine)

Also, I am monitoring the delivery process for the December Comex gold contract. Here is what we have for first notice day:

We had a total of 8,600 issued and stopped – to put it into perspective, the entire month of October was 11,554 deliveries. November, an off month, had 1,288 if my data is correct. What is curious is that Bank of Nova Scotia was the big stopper in the month of November but the first notice day for the December shows them as issuing 2,327 but stopping 3,523. It is hard to figure out what they or their customers are doing there but on balance they are still taking more than they are issuing. They are still the LARGEST STOPPER.

Credit Suisse is the largest issuer.

The "issuer" is the seller, and the "stopper" is the taker of delivery. Here is data from the COMEX delivery report:

DEL = short positioned "stopped", which now needs to deliver gold.
ACC = long positions who issued delivery notices.

TENDERED/ACCEPTANCES
GC
8-Dec

DEL
ACC

GOLDMAN SACHS & CO.
0
463

PRUDENTIAL BACHE COMODITIES, LLC
122
0

DEUTSCHE BANK SECURITIES, INC.
0
774

NEWEDGE USA,LLC
966
0

RAND FINANCIAL SERVICES INC
0
2

NFI DIVISION OF NEWEDGE USA,LLC

BANC OF AMERICA SECURITIES LLC
2,000
0

HSBC SECURITIES (USA) INC.
0
1,893

MF GLOBAL INC.
4
0

CREDIT SUISSE SECURITIES(USA), LLC
2,585
60

STERLING COMMODITIES CORP.

GREENWICH CAPITAL MARKETS, INC.
0
43

GELDERMAN DIVISION OF FC STONE, LLC
0
46

MERRILL LYNCH PIERCE FENNER & SMITH, INC
0
3

THE BANK OF NOVA SCOTIA
2,327
3,523

J.P. MORGAN FUTURES INC.
308
227

TRILAND USA INC.
275
169

R.J. O'BRIEN & ASSOCIATES, LLC

F C STONE L.L.C.

FORTIS CLEARING AMERICAS, LLC
7
366

UBS SECURITIES, LLC
0
978

BARCLAYS CAPITAL, INC.
0
11

PTG DIV OF NEWEDGE USA,LLC
0
9

RBC CAPITAL MARKETS CORPORATION
0
11

ROSENTHAL COLLINS GROUP
0
1

MBF CLEARING CORP.
0
1

MF GLOBAL INC.-PIONEER DIVISION
0
4

CITIGROUP GLOBAL MARKETS INC.
6
16

ADM INVESTOR SERVICES INC.

TOTAL
8,600
8,600

These 8,600 contracts are calling for delively of a combined 860,000 ounces of gold. To put that in perspective, here is some data on COMEX's Warehouse Stockpiles taken directly from http://www.nymex.com/warehouse.aspx:

TOTAL REGISTERED
2,804,270

TOTAL ELIGIBLE
5,713,922

COMBINED TOTAL
8,518,192

Finally, here is an explanation of the terminology of "registered" and "eligible" COMEX gold stockpiles from silveraxis.com:

For those who aren’t familiar with the terminology, the registered category of COMEX warehouse bullion stocks generally refers to gold and silver bars against which COMEX warehouse receipts are outstanding. The COMEX publishes these stocks on a daily basis and they can be found here: Silver Gold. The registered category is the total pool of gold and silver available at any time to meet delivery requirements under expiring futures contracts or to establish initial futures contract positions through a transaction called exchange-for-physicals (I’ll explain this another time). It is important to realize, however, that many parties holding COMEX gold and silver in registered form have no intention of making their holdings available for delivery. By this I mean that such parties are neither (1) holding a short futures position against the warehouse receipt nor (2) willing to sell their registered metal (warehouse receipts) to a party with a short futures position. Indeed, a substantial portion of those holding registered metal would have acquired the COMEX warehouse receipts by holding long futures positions for delivery. In other words, these registered stocks are held for investment and not for commercial purposes.

In comparison, the eligible category of COMEX warehouse bullion stocks generally refers to bullion held in the warehouses that meets the specifications of an acceptable COMEX bar (proper weight, size, purity and refiner) but does not have a COMEX warehouse receipt issued against it. For example, an investor might purchase several 1,000 oz. bars of silver from a dealer and then deliver the bars for allocated storage at a COMEX warehouse. This is a private arrangement and has nothing to do with the COMEX. Unless these bars are officially registered (the easiest way to do this is through the aforementioned exchange-for-physicals), they will remain in the eligible category until withdrawn from the warehouse by the investor. Thus, the appropriate way to treat eligible COMEX warehouse bullion stocks is that they represent metal that could potentially be registered at some point in the future but cannot presently be used to make delivery under a short futures contract.

My reaction: Based upon Deliveries of 860,000 oz, 31% of the COMEX's registered gold just got vaporized yesterday.

Iceland's Daily Protest in -5 C

2008-11-29T14:44:00.000-08:00

Let the Blame Games Begin

2008-11-29T08:40:00.000-08:00

The changes in consumer expenditures during the great depression strongly suggest that the the world's economic pain will fall disproportionally on the US. Specifically, the Crash of 1929 caused a collapse in durable goods spending in 1930, with a 50% decline from 1929 to 1933. Unfortunately for America, our manufacturing and exports are heavily concentrated in durable goods, as evidenced on the White House's Website:

Most U.S. exports of goods are capital goods, consumer durable goods, and inputs that are used to produce them, and are therefore very sensitive to changes in foreign GDP. Capital goods and consumer durables account for 61 percent of nonenergy U.S. merchandise exports. Industrial supplies, which are often used in the production of capital goods and durable goods, account for 14 percent of nonenergy U.S. exports. For example, in 2006, the United States exported almost $85 billion worth of automobiles, auto parts, tractors, and trucks; $46 billion worth of electronic circuits; more than $43 billion worth of airplanes and aircraft; and nearly $21 billion worth of parts and components for office machinery.

As for low-quality non-durable products (heavily purchased by poorer Americans) whose consumption held up best during the great depression, America's CEOs have aggressively outsourced them around the world. China exports growth, for example, has been primarily concentrated in these low quality goods. As the dollar collapses, These cheap imports which benefited America's poor will soon become high cost imports which crush them.

To summarize, America makes and exports durable goods which are especially sensitive to economic downturns, while China makes cheap non-durable goods which are the most resistant to downturns. With the worldwide sale of SUVs and tractors likely to fall much further than the worldwide sale of diapers, the global economic slowdown will disproportionately hurt the US's economy and trade deficit.

Make sure you add CEOs who championed outsourcing to your list of "people who destroyed our country".

Rogers Predicts $ Devaluation

2008-11-28T19:22:00.000-08:00

Despite the prospect of a more than doubling of the U.S. annual budget deficit for each of the next two years, the dollar has held up reasonably well so far against the world's other major currencies, actually rising against the euro and British pound, while falling against Japan's yen.

But a commodities guru says that won't last.

Commodities expert Jim Rogers says U.S. policy makers will devalue the dollar, undercutting the greenback's reserve currency status, according to Bloomberg News.

"They think that if you drive down the value of your money, it makes you more competitive, now that has never worked in history in the long term," Rogers said. He added that he is buying Japan's yen and started buying commodities, such as sugar, in October, calling low commodity prices "astonishing." (For full currency data, click here.)

Still, despite Rogers' superior performance predicting commodity cycles -- in 2006 he correctly predicted that oil would hit $100 and gold $1,000 -- not every economist is in agreement with his dollar devaluation thesis. Economist David H. Wang said that while the dollar will likely decline in value some, due to increased U.S. government borrowing, that does not guarantee a decrease in U.S. competitiveness.

"Contrary to Roger's analysis, the U.S may in fact become more competitive, as the cost of U.S. products to foreign buyers declines," Wang said. "China has demonstrated that lower prices for goods, combined with overall quality, can increase exports."

Further, currency trader Andrew Resnick took issue with Rogers' buy-the-yen strategy. "The yen will rise, for now, on the belief that Japan's banks will be less hurt by toxic assets, but when the global economic recovery starts, led by the U.S., the yen will fall," Resnick said. "The yen should only be viewed as a short-term trade of six months or less, but there's considerable risk in holding the yen for that short period of time." Resnick added that he was presently long with the dollar vs. the euro and British pound.

Monetary Policy Analysis: It's hard to argue with Rogers' forecast on commodity prices -- his track record has been very good, and commodity prices will eventually rise from current lows. But unless one is long-term bearish on the U.S., so will U.S. stock prices, in tandem with a U.S economic recovery. Further, U.S. short-term interest rates are negative, in real terms (after accounting for inflation), and they'll return to normal levels as the recovery starts. Those two factors -- rising stock prices and higher interest rates -- likely will bolster the dollar. Finally, it's difficult to predict shifts in the world's reserve currency status, as it involves a geopolitical power assessment, as well as an economic one.

The Effete Elite Blame the Consumer

2008-11-28T17:17:00.000-08:00

Of course the American consumer didn’t consume the right quantities of the right consumable to meet the demands of the right market sector. All you hear from most TV talking heads and print opinion makers is a steady line of this bravo sierra.
Americans consumed -Congress and the President sent checks to insure this consumption. Just as debt is a racket to enslave the weak willed the actions of our political leaders were a trap set to entrap most of the American middle class into slavery.

It’s worked. Democrats and a willing President allowed the buying of votes in exchange for houses, auto loans, monthly checks and tax refunds where no taxes were paid. They have stimulated us into poverty. I believe this was a planned willful action not some economic anomaly.

Now as our economy melts into oblivion we watch the banks (and their owners) that will own our souls receive the last bit of good faith and credit our government has left. Our 4th estate which is s shill for our new masters has told us all along that Brittney and Dancing with Stars are more important that turning over a free nation with opportunity for success and failure to our children. We watch the Federal Reserve and Treasury Secretary loot the treasury in broad daylight without the benefit of reasonable explanations.

Hope, change and fairness have replaced Home of the Brave and Land of the Free. Our media has built an inexperienced Marxist social climber into the new Jesus.
So here we are. Our government is killing off the last vestiges’ of capitalism and our economy to insure only the elite will have prosperity. The orgy of spending engaged by the treasury will insure collapse of the dollar and the capitulation of the Treasury. The Obama half of the population will wonder about what their Messiah will be dining on, if they can join the new secret police and if their IPods can run on green energy.

The rest of us will be looking for food and a place to hide from the Elites and their proxy Obama Zealots.
May God help us.

Could Gold Double in a Day?

2008-11-27T08:30:00.000-08:00

Jim Rogers, Dems Turning Recession into Depression

2008-11-25T18:43:00.000-08:00

US Credit Kaput

2008-11-25T14:13:00.000-08:00

by Eric deCarbonnel

MarketWatch reports that the government's credit is disappearing:

(emphasis mine)

We can't afford the Citigroup deal
Commentary: The government's credit is disappearing
By David Weidner, MarketWatch
Last update: 12:01 a.m. EST Nov. 25, 2008

NEW YORK (MarketWatch) -- The Troubled Asset Relief Program was supposed to be the financial equivalent of "the big one." Drop one on the banking system, and the credit crisis would surrender.

Originally modeled on the Resolution Trust Corp. that swallowed failed savings-and-loans with bureaucratic consistency in the late '80s and early '90s, the $700 billion TARP and the $250 billion in equity injections spawned from it were supposed to shore up the banking system. It was supposed to be a painful but necessary step, like razing a swath through a city to halt an out-of-control blaze.

Well, the smoke cleared, and it turned out Citigroup Inc. (C) was still on fire.

First came concerns about Citi's commercial real-estate portfolio. Then it was credit-card debt. Citigroup fueled its own demise by saying it would absorb another $17.4 billion from its structured investment vehicle. It announced 50,000 job cuts and more asset sales. Then came a controversy about the board's support of its chairman, Win Bischoff.

With the stock at $3, it clearly wouldn't be long before lines would start forming outside Citibank branches around the globe. For an institution with $3 trillion in on- and off-balance-sheet assets, that $25 billion Citi had under TARP might as well have been 25 cents.

So now we have a bailout of a bank that allegedly had been bailed out less than two months ago. Fine. But what's the cost? Under the plan, $29 billion of losses in that portfolio will fall to Citigroup. After that, the government will absorb 90% of the losses. About $306 billion in assets have been identified as at risk, so taxpayers are essentially on the hook for $250 billion.

Video: Bailout power put to test

With the rescue package for Citigroup and others to come, the U.S. government's debt is on pace to run up an additional $1 trillion, says MarketWatch columnist David Weidner. But the financial system's capacity for bailout is reaching its limits. (Nov. 24)

Think about that for a minute. Much of the credit at risk is credit-card debt. These "asset-backed" securities have been put at risk, in part, by banks that ratchet up interest rates to as much as 30% for late payments. But now, people -- many of whom are falling behind on their credit-card payments -- will now have to shoulder another debt: Citigroup's. And who do you think will get the profits should those loans get paid? Citigroup, of course.

The national debt

Everyone seems to be having trouble with credit cards, but Washington needs credit counseling. The federal government has an $11.32 trillion credit limit, and it's carrying a balance of $10.66 trillion, according to a Treasury Department spokesman.

Government officials stress there's no borrowing planned as a result of Citigroup Bailout No. 2. But they also acknowledge the government doesn't have any cash to cover Citi's losses.

Before the financial crisis entered its critical stage of the past few months, the deficit for fiscal year 2008 ended in September was about $400 billion -- a sharp increase from the previous year's deficit of $163 billion, according to the Treasury Department.

Less than three months ago, the 2009 deficit was expected to exceed $500 billion. Now, including TARP, that number is swelling to $1.2 trillion -- not counting how much more we may have to spend on American International Group Inc. (AIG) , Fannie Mae (FNM) and Freddie Mac (FRE) As a percentage of gross domestic product, borrowing was about 3% last year. That's expected to more than double in fiscal 2009, considering GDP will not grow in a recession and Congress has authorized TARP spending. Throw in some tax cuts and declining demand for our debt overseas, and we have the ingredients for a toxic mix that could end up making our debt more expensive, even if we avoid default.

"There's no God-given gift of a 'AAA' rating," Standard & Poor's John Chambers told Reuters in September. "The U.S. has to earn it like everyone else."

Opening the door

The problem, of course, isn't our existing debt level, but the threat of more debt from more bailouts hitting the books. There is $1.25 trillion in outstanding commercial mortgage-backed securities out there, according to Dealogic.

If Citigroup's holdings are in doubt, why not Bank of America Corp. (BAC)? Will that bank's chief executive, Ken Lewis, ask for the same kind of backstop granted to his biggest competitor? Investors think if he does, he has to get it: Shares of Bank of America rose 24% on Monday.

Morgan Stanley (MS) It gained 28.7%. Goldman Sachs Group Inc. (GS) added 26%.

As Citi, AIG, Fannie and Freddie have shown us, government intervention is not a game of half-measures. Either the government backs a bank or it doesn't. Surgery isn't an option, but amputation is. The disease has spread to too many parts. Maybe we just don't have enough medicine to save the system.

We thought TARP was the big one, and maybe it was. But instead of getting dropped on the credit crisis, it was used on us.

My reaction: As much as Americans try to fight it, a steady stream of stories like this, which point out the insane fiscal position of our government, will force the realization that the dollar is doomed. As the panic shifts from crashing equities to our ailing currency, the dollar's slide into the abyss will accelerate.

Worse Yet to Come

2008-11-25T06:29:00.000-08:00

The New York Times reports about how badly the market is doing this year

(emphasis mine)

And You Thought 1931 Was Bad for the Market

THIS is shaping up as the year when almost nothing went up.

Even after Friday’s large stock market rally, only 10 of the stocks in the Standard & Poor’s 500, the premier American stock index, are higher than they were at the end of 2007, and the index itself is down almost as far as it was in the worst year it ever experienced, at the height of the Great Depression.

Although the accompanying charts focus on the United States, similar things can be said in most markets. Only a handful of European stocks are up this year, and within the once buoyant Chinese and Indian stock markets, there are almost no stocks showing gains.

There has, in other words, been nowhere to hide from the collapse of 2008.

The ubiquity of the problems reflects how integrated the international financial system has become, as well as the fact that most of the world is now in recession or getting close to it.

Moreover, many asset prices were pumped up in years past by excessive debt, and are now falling as many investors choose to, or are forced to, reduce their borrowing.

Standard & Poor’s has been keeping statistics on the breadth of the 500 stocks in the index only since 1980. Until now, 2001 was the worst year on record in that regard, when just 131 of them rose. But unless there is a substantial year-end rally, that figure could be 10 times the one for 2008.

One measure of the depth of the market malaise is that there are as many stocks in the S.& P. 500 that have declined by 90 percent this year — 10 — as there are stocks that have risen at all. Several of the winners, among them Rohm & Haas, the chemical company, and UST, the maker of snuff tobacco, are up only because they agreed to all-cash takeovers early in the year. Their acquirers are down sharply.

So far this month, the figures are little better. Just 24 of the stocks in the index are up. S.& P. has been keeping track of the monthly figures only since 1999. Until this year, the lowest number rising in a month was 56 in September 2002 — just before the last bear market ended. That number was challenged in September of this year, when 65 rose, and shattered last month, when just 28 of the 500 stocks showed gains.

The S.& P. 500 has lost more than a third of its value in a calendar year only twice before, both during the Great Depression. It fell 41.9 percent in 1931, and 38.6 percent in 1937. The worst post-Depression year, until now, was 1974, when the index fell 29.7 percent amid the worst postwar recession the country has yet seen.

But this year, the index is down 45.5 percent. Amazingly enough, it has done better than leading indexes in many other countries, at least when currency changes are filtered out.

Measured in dollars, the leading indexes in Britain, France, Germany, Canada, China, India, Australia, Brazil and Mexico have all lost more than half their value. Japan’s leading index is down almost 50 percent in yen, but just 40 percent in dollars because of the rise of the yen this year.

Finally, Business Week reports that every stock mutual fund has lost money in 2008, except one:

Out of the 11,585 U.S. and international stock mutual funds tracked by Morningstar Inc., 11,584 have lost money in 2008, according to fund data through Nov. 20.

In other words, just one fund hasn’t lost money this year—and that is the APX Mid Cap Growth Fund, which was flat through Thursday’s close. That’s right, folks, its return—or lack thereof—is a mere zero thus far in 2008.

-----

My reaction: It is stunning to think about how badly the market is doing this year. Diversification was no defense: everything got crushed. The saddest part is that the worst is yet to come...

Great Peter Schiff Clip

2008-11-24T19:31:00.000-08:00

ICELAND , Same in store for US

2008-11-24T13:20:00.000-08:00

7.4 TRILLION!!!!

2008-11-24T06:12:00.000-08:00

Nov. 24 (Bloomberg) -- The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year, to rescue the financial system since the credit markets seized up 15 months ago.

The unprecedented pledge of funds includes $2.8 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the only plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.

When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.

“Whether it’s lending or spending, it’s tax dollars that are going out the window and we end up holding collateral we don’t know anything about,” said Congressman Scott Garrett, a New Jersey Republican who serves on the House Financial Services Committee. “The time has come that we consider what sort of limitations we should be placing on the Fed so that authority returns to elected officials as opposed to appointed ones.”

Too Big to Fail

Bloomberg News tabulated data from the Fed, Treasury and Federal Deposit Insurance Corp. and interviewed regulatory officials, economists and academic researchers to gauge the full extent of the government’s rescue effort.

The bailout includes a Fed program to buy as much as $2.4 trillion in short-term notes, called commercial paper, that companies use to pay bills, begun Oct. 27, and $1.4 trillion from the FDIC to guarantee bank-to-bank loans, started Oct. 14.

William Poole, former president of the Federal Reserve Bank of St. Louis, said the two programs are unlikely to lose money. The bigger risk comes from rescuing companies perceived as “too big to fail,” he said.

The government committed $29 billion to help engineer the takeover in March of Bear Stearns Cos. by New York-based JPMorgan Chase & Co. and $122.8 billion in addition to TARP allocations to bail out New York-based American International Group Inc., once the world’s largest insurer. Yesterday, Citigroup Inc. received $306 billion of government guarantees for troubled mortgages and toxic assets. The Treasury Department also will inject $20 billion into the bank after its stock fell 60 percent last week.

“No question there is some credit risk there,” Poole said.

Exposure

Congressman Darrell Issa, a California Republican on the Financial Services Committee, said risk is lurking in the programs that Poole thinks are safe.

“The thing that people don’t understand is it’s not how likely that the exposure becomes a reality, but what if it does?” Issa said. “There’s no transparency to it so who’s to say they’re right?”

The worst financial crisis in two generations has erased $23 trillion, or 38 percent, of the value of the world’s companies and brought down three of the biggest Wall Street firms.

The Dow Jones Industrial Average through Friday is down 38 percent since the beginning of the year and 43 percent from its peak on Oct. 9, 2007. The S&P 500 fell 45 percent from the beginning of the year through Friday and 49 percent from its peak on Oct. 9, 2007. The Nikkei 225 Index has fallen 46 percent from the beginning of the year through Friday and 57 percent from its most recent peak of 18,261.98 on July 9, 2007. Goldman Sachs Group Inc. is down 78 percent, to $53.31, on Friday from its peak of $247.92 on Oct. 31, 2007, and 75 percent this year.

‘Snookered’

Regulators hope the rescue will contain the damage and keep banks providing the credit that is the lifeblood of the U.S. economy.

Most of the spending programs are run out of the New York Fed, whose president, Timothy Geithner, is said to be President- elect Barack Obama’s choice to be Treasury Secretary.

The money that’s been pledged is equivalent to $24,000 for every man, woman and child in the country. It’s nine times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office figures. It could pay off more than half the country’s mortgages.

“It’s unprecedented,” said Bob Eisenbeis, chief monetary economist at Vineland, New Jersey-based Cumberland Advisors Inc. and an economist for the Atlanta Fed for 10 years until January. “The backlash has begun already. Congress is taking a lot of hits from their constituents because they got snookered on the TARP big time. There’s a lot of supposedly smart people who look to be totally incompetent and it’s all going to fall on the taxpayer.”

New Deal

President Franklin D. Roosevelt’s New Deal of the 1930s, when almost 10,000 banks failed and there was no mechanism to bolster them with cash, is the only rival to the government’s current response. The savings and loan bailout of the 1990s cost $209.5 billion in inflation-adjusted numbers, of which $173 billion came from taxpayers, according to a July 1996 report by the U.S. General Accounting Office.

The 1979 U.S. government bailout of Chrysler consisted of bond guarantees, adjusted for inflation, of $4.2 billion, according to a Heritage Foundation report.

The commitment of public money is appropriate to the peril, said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. and a former economist at the New York Fed. U.S. financial firms have taken writedowns and losses of $666.1 billion since the beginning of 2007, according to Bloomberg data.

“This is the worst capital markets crisis in modern history,” Harris said. “So you have the biggest intervention in modern history.”

Federal Lawsuit

Bloomberg has requested details of Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit against the central bank Nov. 7 seeking to force disclosure of borrower banks and their collateral.

Collateral is an asset pledged to a lender in the event a loan payment isn’t made.

“Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting,” Bernanke said Nov. 18 to the House Financial Services Committee. “We think that’s counterproductive.”

The Fed should account for the collateral it takes in exchange for loans to banks, said Paul Kasriel, chief economist at Chicago-based Northern Trust Co. and a former research economist at the Federal Reserve Bank of Chicago.

“There is a lack of transparency here and, given that the Fed is taking on a huge amount of credit risk now, it would seem to me as a taxpayer there should be more transparency,” Kasriel said.

$4.4 Trillion

Bernanke’s Fed is responsible for $4.4 trillion of pledges, or 60 percent of the total commitment of $7.4 trillion, based on data compiled by Bloomberg concerning U.S. bailout steps started a year ago.

“Too often the public is focused on the wrong piece of that number, the $700 billion that Congress approved,” said J.D. Foster, a former staff member of the Council of Economic Advisers who is now a senior fellow at the Heritage Foundation in Washington. “The other areas are quite a bit larger.”

The Fed’s rescue attempts began last December with the creation of the Term Auction Facility to allow lending to dealers for collateral. After Bear Stearns’s collapse in March, the central bank started making direct loans to securities firms at the same discount rate it charges commercial banks, which take customer deposits.

In the three years before the crisis, such average weekly borrowing by banks was $48 million, according to the central bank. Last week it was $91.5 billion.

Lehman Failure

The failure of a second securities firm, Lehman Brothers Holdings Inc., in September, led to the creation of the Commercial Paper Funding Facility and the Money Market Investor Funding Facility, or MMIFF. The two programs, which have pledged $2.3 trillion, are designed to restore calm in the money markets, which deal in certificates of deposit, commercial paper and Treasury bills.

“Money markets seized up after Lehman failed,” said Neal Soss, chief economist at Credit Suisse Group in New York and a former aide to Fed chief Paul Volcker. “Lehman failing made a lot of subsequent actions necessary.”

The FDIC, chaired by Sheila Bair, is contributing 20 percent of total rescue commitments. The FDIC’s $1.4 trillion in guarantees will amount to a bank subsidy of as much as $54 billion over three years, or $18 billion a year, because borrowers will pay a lower interest rate than they would on the open market, according to Raghu Sundurum and Viral Acharya of New York University and the London Business School.

Bank Subsidy

Congress and the Treasury have ponied up $892 billion in TARP and other funding, or 12 percent.

The Federal Housing Administration, overseen by Department of Housing and Urban Development Secretary Steven Preston, was given the authority to guarantee $300 billion of mortgages, or about 4 percent of the total commitment, with its Hope for Homeowners program, designed to keep distressed borrowers from foreclosure.

Most of the federal guarantees reduce interest rates on loans to banks and securities firms, which would create a subsidy of at least $6.6 billion annually for the financial industry, according to data compiled by Bloomberg comparing rates charged by the Fed against market interest currently paid by banks.

Not included in the calculation of pledged funds is an FDIC proposal to prevent foreclosures by guaranteeing modifications on $444 billion in mortgages at an expected cost of $24.4 billion to be paid from the TARP, according to FDIC spokesman David Barr. The Treasury Department hasn’t approved the program.

Automakers

Bernanke and Paulson, former chief executive officer of Goldman Sachs, have also promised as much as $200 billion to shore up nationalized mortgage finance companies Fannie Mae and Freddie Mac. The FDIC arranged for $139 billion in loan guarantees for General Electric Co.’s finance unit.

The tally doesn’t include money to General Motors Corp., Ford Motor Co. and Chrysler LLC. Obama has said he favors financial assistance to keep them from collapse.

Paulson told the House Financial Services Committee Nov. 18 that the $250 billion already allocated to banks through the TARP is an investment, not an expenditure.

“I think it would be extraordinarily unusual if the government did not get that money back and more,” Paulson said.

‘We Haircut It’

In his Nov. 18 testimony, Bernanke told the House Financial Services Committee that the central bank wouldn’t lose money.

“We take collateral, we haircut it, it is a short-term loan, it is very safe, we have never lost a penny in these various lending programs,” he said.

A haircut refers to the practice of lending less money than the collateral’s current market value.

Requiring the Fed to disclose loan recipients might set off panic, said David Tobin, principal of New York-based loan-sale consultants and investment bank Mission Capital Advisors LLC.

“If you mark to market today, the banking system is bankrupt,” Tobin said. “So what do you do? You try to keep it going as best you can.”

“Mark to market” means adjusting the value of an asset, such as a mortgage-backed security, to reflect current prices.

Some of the bailout assistance could come from tax breaks in the future. The Treasury Department changed the tax code on Sept. 30 to allow banks to expand the deductions on the losses banks they were buying, according to Robert Willens, a former Lehman Brothers tax and accounting analyst who teaches at Columbia University Business School in New York.

‘Wells Fargo Notice’

Wells Fargo & Co., which is buying Charlotte, North Carolina-based Wachovia Corp., will be able to deduct $22 billion, Willens said. Adding in other banks, the code change will cost $29 billion, he said.

“The rule is now popularly known among tax lawyers as the ‘Wells Fargo Notice,’” Willens said.

The regulation was changed to make it easier for healthy banks to buy troubled ones, said Treasury Department spokesman Andrew DeSouza.

House Financial Services Committee Chairman Barney Frank said he was angry that banks used the money for acquisitions.

“The only purpose for this money is to lend,” said Frank, a Massachusetts Democrat. “It’s not for dividends, it’s not for purchases of new banks, it’s not for bonuses. There better be a showing of increased lending roughly in the amount of the capital infusions” or Congress may not approve the second half of the TARP money.

To contact the reporters on this story: Mark Pittman in New York at mpittman@bloomberg.net; Bob Ivry in New York at bivry@bloomberg.net.

Last Updated: November 24, 2008 05:22 EST

Bonds , Once in 30 Year OP

2008-11-23T06:50:00.000-08:00

How $50 Oil will KILL the DOLLAR, Your Savings & JOB

2008-11-22T19:38:00.000-08:00

The END?

2008-11-21T18:33:00.000-08:00

by Eric deCarbonnel

The Market Oracle reports that The Global Financial System is Coming to an End:

The Global Financial System is Coming to an End

Economics / Financial Crash Nov 21, 2008 - 01:47 PM
By: Dr_Janice_Dorn

I don't have to tell you how awful things are. People all over the world are frightened. Many are panicking. Most are confused and don't know where to turn for guidance or help with their money and their future. Since January 1, 2008, stockholders of U.S. corporations have suffered about $8 trillion in losses, as their holdings declined in value from $20 trillion to $12 trillion. Homeowners will soon see their equity down by as much as $8 trillion, and those losses are likely to increase.

The currency markets have been in turmoil as the carry trades unwind viciously and in a most terrifying manner. Hedge funds ( that turned out to not even understand the meaning of the word “hedging”) are going out of business and liquidating like there is no tomorrow. They cannot survive with returns they have—some in excess of minus 50%. That's a very huge ouch.

The media continues to feed us with hope that things will get better. How comforting that the price of oil has gone down and we now have a silent tax savings. Yippee. That is small consolation for those people who are losing their jobs. The unemployment numbers from last week were ugly. October showed a loss of 240,000 jobs. To add insult to injury, the negative revision to August and September increased these losses by an additional 179,000. The economy has lost 1.2 million jobs since December, with over half of those losses in the last 3 months. While two-thirds of the losses are in manufacturing and goods production, the service economy is also starting to show signs of strain.

At least two trillion dollars have disappeared from the IRAs and savings accounts of millions of hard-working Americans. People are fearful because they now know that they can no longer trust their elected officials to protect them from harm. It's one thing to spend trillions fighting a war in Iraq to keep the “homeland” safe. It's quite another when people have to make a decision between eating and buying needed prescription medications. Old people are eating cat food because they do not have enough money to eat and buy their medications.

Meanwhile, the gangster bankers are being paraded before Congress, exposing their greed and arrogance. How about that Dick Fuld? What a performance --and can you see the greed slithering all over him like a greased pig? They will get a slap on the hand and their 15 minutes of public humiliation before they slither back to their desert islands and palatial estates. Why should they be held accountable for running their companies into the ground and losing billions for their shareholders and employees while they lined their pockets and walked away with hundreds of millions in Golden Parachutes?

Stephen Colbert called Jim Cramer “a prophet” for saying that the Fed knew nothing when everyone said he was nutso. People are now telling Nick Russo and me that we are brilliant for warning them about The Big Rollover, beginning in 2005 when no one wanted to listen and they told us we were even more nutso than Cramer ( and that, my friends, is a whole lotta' nutso!)

Europe is in complete turmoil, and the fate of the euro hangs in the balance. Milton Friedman said that the euro would not survive the first recession and it is possible that he is about to be proven right.

Pakistan is going bankrupt. Iceland, once a safe haven for all things banking, is now closed for business. Icesave's owner, Landsbanki, was nationalized and put in receivership.
The capital of Iceland is Zero. Inflation in Iceland is now close to 16% and rising.

Furious British customers were told they faced battling through two different compensation schemes to get their money back. Between the 300,000 of them, they have 5 billion British pounds in Icesave.
European banks are at risk of losing $75 BILLION on the Iceland default.

Ask yourself how you would feel if you logged into your online bank account and saw this message?

We are not currently processing any deposits or any withdrawal requests through our Icesave internet accounts. We apologize for any inconvenience this may cause our customers. We hope to provide you with more information shortly.

http://www.icesave.co.uk/

We have reason to believe that Argentina, Pakistan, Hungary, Romania and Belarus are in trouble. The Federal Reserve is being sued by Bloomberg News under the Freedom of Information Act. The Federal Reserve, aka, The Creature From Jekyll Island (thank you G. Edward Griffin for your fabulous book!) is refusing to identify the recipients of almost $2 TRILLION dollars of emergency loans that they picked from the pockets of the American taxpayer. The Federal Reserve is also refusing to identify the nature of the “troubled assets” they are accepting as collateral.
So much for transparency.

Meanwhile, the financial capital of the world has moved from New York to Washington, D.C. We have a new governmental structure. Yes, we have a new imperial structure with Emperor Henry at the helm. It's that same Emperor Henry that took his $700 million when he left Goldman Sachs, and is now dumping this $820 BILLION package of debt into the laps of each of us---the American taxpayer. We also bow down to Emperor Henry for appointing a 35 year old clone of his from Goldman Sachs to manage our money. And- by the way, Emperor Henry will be leaving soon, taking his and some of our money with him. Asked who would be a good replacement for King Henry, our two major candidates suggested Warren Buffett or Meg Whitman. How's that for a choice between the lesser of two evils?

In any case, the foxes are now guarding the chicken coop, and we are the chickens. Do you think for one minute that we will ever see one cent of that money returned to us?

As we predicted publically in early 2007—Obama has been elected. This was been predetermined by history and chronicled in brilliant detail in The Fourth Turning by Strauss and Howe. Now, the die is cast and we have elected to the highest office in the U.S. an individual that will try to clean up the major mess we are in. Rather than Commander in Chief, he will be forced to assume the role of Janitor in Chief. We are facing a depression that will rival that of the Great Depression of the 1920's and may more closely resemble the Greater Depression of 1873.

There are going to be stock market rallies within this bear market, and that will be the time for those still holding and hoping to get out before the bear really begins to claw in 2009.

Before this secular Bear Market is over, we are going to new lows in all indices, more than 3500 banks will close, unemployment will surge, there will be violence in the streets and people will kill you to get what you have. Every one of the 17 macro factors detailed in The Big Rollover is converging and coming to fruition. Sorry—but this is what we see in the future. Could we be wrong? Of course. No one has a crystal ball that can see beyond the hard right edge of the charts. No one can tell the future with complete accuracy. All we have are our many years of research and the fact that everyone has now begun to see, hear and feel the power of The Big Rollover.

This is what we are giving to our children and their children. This is why we need to apologize to them, and apologize profusely because they will be paying for our mistakes for the rest of their lives. I have enormous compassion for these young people who will be the victims of the privatization of profits and the socialization of losses. Just as we have allowed our elected officials to loot us, we have looted our children and their children.

Meanwhile, there is plenty of blame to go around. . Trying to sort this out in a blame game would put our country into more debt than the Kilimanjaro of debt in which we already find ourselves!

There is more than enough blame to go around, and the blaming and whining has only begun!

So, let me make this simple for you. If you want to blame someone, here is my second choice:

Kakistocracy. That's right. Pure, unfettered, unprincipled and undisciplined KAKISTOCRACY: government by the least qualified or most unprincipled citizens.

If you want to see the U.S. government in all of its oxymoronic glory, observe that Representative Barney Frank--- one of the men responsible for the current economic debacle-- will head the investigation into what caused the debacle.

Speaking on the bailout, Frank had the unmitigated gall to say "We were the EMTs rushing to the rescue of an economy that suddenly found itself choking, but now we have to perform more serious reform."

Please Wake Up America. Frank and his cronies were choking the American people and –at the same time—picked our pockets and handed our money to everyone but us.

When will guys like this finally go to prison? When? Likely never. They are the root of Kakistocracy.

My reaction: Until recently, I had been planning on holding gold and riding things out. Now I am seriously considering leaving the country.

Peter Schiff ..Bargains

2008-11-20T20:15:00.000-08:00

Hyperinflation

2008-11-20T15:56:00.000-08:00

by Eric deCarbonnel

In the investor community, there currently exists the belief that hyperinflation is impossible because of the deflationary debt unwind now underway. However, this logic is based on the flawed assumption that the money supply is the only important factor when determining inflation or deflation. This ignores the fact that for nations heavily dependent on foreign imports, like the US and Iceland, the purchasing power of the currency is the most important determinant of inflation/deflation.

The Conventional Wisdom

Some very smart people who have done an excellent job covering the credit crisis have bought into the deflation-means-no-inflation argument. For example, Professor Depew at Minyanville reports that Five Things You Need to Know: Why Not Hyperinflation? : (emphasis mine)

Almost every day I get notes wondering, "Why not hyperinflation?"

This is a good question. I'll try and explain why I believe a deflationary debt unwind is now underway, and why I believe it will be many years before we should start worrying about inflation again. In fact, by the time inflation becomes a legitimate concern, I expect the vast majority of people will find it as outrageous to worry about inflation then as found it outrageous last year when I made deflation one of my Five Themes for 2008.

While it is true, as those anticipating hyperinflation argue, the Fed and global central banks are making record amounts of credit available, that is only one side of the credit equation.

The assumption is that this record-breaking credit expansion means risk assets (stocks, commodities, etc.) will all skyrocket and the U.S. dollar will get destroyed. But what hyperinflationists fail to realize is that for an inflation (of either the tame or hyper variety) to take place, one must have both the means (credit from the fed and banks) and the motive (the desire to take on more debt) for credit expansion. For over a year now we have had record amounts of the former, but none of the latter. ...

And Mike Shedlock also expresses this view on his blog.

Deflation Is Here

There is no longer any debate (at least there should not be). Industrial Bond Yields Strongly Support Deflation Thesis.

10 year to 30 year Gap Narrows

I could see by the action in treasuries that players were betting the gap would widen and the yield curve would steepen. However, I never understood why those bets were made.

Someone from one of the big brokerage houses emailed me last week saying the yield curve would steepen. My response was "Why should it?"

The reason for my statement was that one month and 3 month Treasuries were already trading at or near zero. The Fed Funds rate was effectively trading at zero as well. There is no more room for the Fed to cut other than symbolically. OK. The Fed is going to cut by at least 50 basis points in December. Then what?

In the midst of the biggest consumer led recession since the great depression, there is simply no reason to expect treasury yields to rise. Banks are hoarding cash and any cash infusions from the Fed will likely go straight into treasuries or perhaps used for mergers.
…
A bet on the yield curve to steepen is a bet the economy improves. Why should it? An even better question is "How low do 10 year and 30 yields go?" Certainly 3% or lower on the 10 year and even 30 year are in the realm of possibilities. That's how nasty this recession is likely to get.

Simply put, Professor Depew, Mike Shedlock, and others who think that hyperinflation is impossible and that rates on long dated treasuries will continue to fall are dead wrong. The US's deflationary debt unwind will cause the dollar to collapse driving up the cost of imports (oil) and inflation, as has happened in Iceland.

The Iceland example

As a result of the global deflationary debt unwind, Iceland's three biggest banks, Kaupthing Bank, Landsbanki Island and Glitnir Bank have collapsed under the weight of about $61 billion in debts, and its stock market fell has fallen 81% so far this year. Meanwhile, employment has also plummeted as the collapse of the financial sector and large layoffs since October have resulted in a complete standstill in the construction industry. Most importantly, the deflationary collapse has caused the Krona, Iceland's currency, to crash which leading to hoarding of goods at supermarkets and an inflation of 16%. The financial crisis has left Icelanders in a state of shock.

The Iceland example shows how a nation can experience deflation (crashing stock, bond, and real estate markets) while also experiencing high inflation due to a currency collapse (soon to be hyperinflation when it allows its currency to float again).

Similarities between Iceland and the US

Like Iceland, the US is heavily dependent on imports, the most important being oil. Also, thanks to outsourcing, this dependence has grown dramatically in the last few years as a large part of our industrial production moved overseas.

Like Iceland, the US has accumulated an enormous amount of external debt relative to its GDP. As various sectors of our economy shrink or disappear (financials/automakers), this ratio will continue to worsen.

Like what happened in Iceland, our deflationary collapse is going to severely damage our economy, leaving the US with few resources to service its debt. At this very moment, confidence in major US banks is crashing, along with their stock prices, bringing the US one step closer to following in Iceland's footsteps and nationalizing its financial sector.

Yes, the US can print dollars, the world reserve currency, which gives it an advantage Iceland didn't possess. However, this is of little help in averting a dollar collapse. Already, foreign investors are shunning all US assets except treasuries. When falling tax revenue and ever-growing bailouts destroy foreigner's trust in the last US asset they consider safe, an exodus out of the dollar will begin.

US treasuries are not safe

Deflation and deleveraging will not prevent hyperinflation. The falling value of dollar will drive up prices despite the consumer's weakening purchasing power.

A bet on the yield curve steepening is a bet that the dollar will collapse, and this bet makes sense.

Peter Schiff TODAY

2008-11-19T20:24:00.000-08:00

India- 400,000 Millionaires by 2017

2008-11-19T13:36:00.000-08:00

Global financial firm Barclays on Wednesday forecast India will have over 400,000 dollar-millionaires by 2017, making it a leading world wealth market.
The forecast came as it launched its wealth management business in India to provide client advisory and investment services to "high net worth" individuals.

"India is expected to have 411,000 individuals with wealth in excess of one million dollars by 2017," Robert Morrice, managing director of Barclays Wealth, told reporters in India's financial capital Mumbai.

Barclays said they estimated the current number of dollar-millionaires at around 100,000 in India.

India is expected to become the world's eighth-largest wealth market by 2017, Morrice said.

Despite the global financial crisis, Morrice insisted "our timing is right" for launching Barclays' wealth management business in India, and said "buying opportunities across asset classes would emerge at lower levels."

The company would "as part of global strategy, offer solutions to people to manage family wealth," he said.

Global market volatility would "continue in coming months" but could lead to "fresh investment opportunities," Morrice said.

He declined to say when he believed financial markets would begin recovering.

Indian shares have more than halved in value in 2008, hit by the global financial turmoil as overseas funds have pulled out money from emerging markets like India.

Iceland Fate,Our Fate , Soon?

2008-11-19T07:07:00.000-08:00

by Eric deCarbonnel

eNews reports on IIceland after its financial collapse:

(emphasis mine)

Icelanders in shock after financial crisis
By eNews 2.0 Staff
15:22, November 18th 2008

Karlheinz Bellmann went to Iceland to find out what had happened to his savings of 110,000 euros (138,000 dollars), missing since the collapse of the country's Kaupthing Bank.

Four days later, on his way back to Germany, the father of four had other matters on his mind: "What can one do to help the people here?"

Crying fathers who told him how they had lost their jobs, how their wives had experienced the same fate and how they had lost their homes left a strong impression, just as the cynical reactions among Icelandic bank executives at the bar in the Grand Hotel: "Of course we played Monopoly with the country," they told me. "And we had fun. Most of the time it went fine."

Finally, Kaupthing and the other major banks Landsbanki and Glitnir reached the end of the line and the 320,000 inhabitants of the Atlantic island faced national ruin.

Prime Minister Geir Haarde has estimated that the aggressive expansion of the banks has resulted in a 19-billion-dollar mountain of debt. That equals two-and-a-half state budgets or twice the gross domestic product.

The collapse of the financial sector and large layoffs have since October resulted in complete standstill in the construction industry, the first sign of a long downturn. Massive hoarding of goods at supermarkets and an inflation rate of 16 per cent are clear indications of the dire prospects facing the ancestors of the Vikings.

In return for a 2.1-billion-dollar loan the International Monetary Fund (IMF) has demanded that the currency, the krone, which has been weak for the past year be allowed to float freely. That would further reduce the currency's value and make imported products for ordinary consumers even more expensive. A kilo of imported sugar will become a luxury product.

The government has said that a 20 per cent inflation rate and an unemployment rate of over 10 per cent will now have to be reckoned with. Until October, Iceland's "normal" unemployment rate was 1 per cent.

"Sturdy men broke down in tears in front of me and said that the future for Iceland is like a black hole, and that one has to start back in the Stone Age," Bellmann said.

Islanders fear that Iceland's pension funds could be raided. They are practically the only possibility of getting funds without further running-up foreign debts.

The anger expressed by ordinary citizens has been limited, so far. More and more people gather each Saturday in front of the parliament in Reykjavik.

Some of the 6,000 protesters at a demonstration on Saturday threw rolls of toilet paper at the building where a few months earlier the premier had declared that the Icelandic banks were robust and the country's finances were healthy. Now Haarde's party has made an about turn concerning membership of the European Union,

Above all, there seems to be an mood of collective shock.

"You have the feeling that the whole country has lost its self-confidence," publicist Oskar Gudmundsson said.

Bellmann expressed it differently: "It seems like on the Titanic, where people continued to dance even though the ship had hit the iceberg."

Staff at Kaupthing in Reykjavik have assured Bellmann that he is likely get back his assets.

My reaction: This is America's future.

Iceland shows how a nation can experience deflation (stock market down 81% this year) while also experiencing high inflation (soon to be hyperinflation when it allows its currency to float).

The US, like Iceland, is heavily dependent on imports (especially for oil), and has accumulated an unpayable amount of debt. Only the dollar role as the world's reserve currency has saved us so far from Iceland's fate, but that will soon end. In six months to a year, you will be reading stories like this written my visitors to the US.

Father of the AMERO

2008-11-18T09:08:00.000-08:00

G-20 Crap, Good for Gold

2008-11-18T05:46:00.000-08:00

The Market Oracle reports that smart money is bullish on gold following g20 meeting:

(emphasis mine)

Smart Money Bullish on Gold Following G20 Meeting

Nov 17, 2008 - 08:12 AM
By: Adrian_Ash

THE PRICE OF PHYSICAL GOLD
traded on the wholesale market reversed an early 0.7% rally vs. the US Dollar on Monday morning, while world stock markets fell for the 7th time in eleven Nov. sessions to date.

Both the Euro and Pound Sterling slipped back from an early 1.5% jump vs. the US currency, leaving Gold lower for British and European investors.

Crude oil slid from $56 to $51 per barrel as government bond prices rose yet again - pushing the yield paid to new buyers of 10-year US Treasury debt down to 3.71% - despite the G20 meeting of political leaders in Washington this weekend vowing to "use fiscal measures to stimulate domestic demand" while taking "whatever further actions are necessary to stabilize the financial system."
(For those phrases, read " a flood of new government debt" plus " unlimited bail-outs for failed institutions ...)

A joint committee on cross-border regulation of the financial markets is now scheduled to report on March 31st next year.

"The precious metals are continuing their consolidation," says today's note from Mitsui in London.

"Gold is doing better that the more industrial metals, with the pressure on the auto industry capping the [platinum group metals]."

Latest data, released overnight, show Japan sliding into recession between July and Oct. as gross domestic product contracted for the second quarter in succession - the sixth such technical recession since Tokyo's equity and real estate bubble burst at the end of 1989.

Across the Pacific, $22 billion of the $25bn rescue bill for auto-makers now before Congress could be eaten up by General Motors alone, according to a report from Goldman Sachs.

The investment bank has also suspended its rating of GM's stock, suggesting that - after falling 91% over the last 12 months - the equity is now worthless.

The 15-nation Eurozone saw its net trade balance improve only slightly to minus €5.7 billion during September. And here in the United Kingdom today, the Rightmove index of residential-property asking prices showed a 2.9% drop for Oct. after sellers hiked their expectations by 1.0% in Sept.

"Maybe investors are a bit more cautious about gold as a safe haven asset given that the price, obviously, compared with a couple of months ago, has fallen," says David Moore, a commodities analyst with Commonwealth Bank in Sydney, Australia.

"The Gold Price has also been very volatile at times as well. I think there's a preference for cash at the moment."

For Australian investors, gold has retreated by one-fifth since early Oct., when it shot to new all-time highs above A$1,400 an ounce.

Trading above A$1,130 today, Gold Bullion remains nearly twice the price of this time three years ago.

"Liquidity will probably deteriorate even more as we move into December," reckons Steven Barrow, writing today for Standard Bank in London.

"As the liquidity provided by short-term speculation declines, currencies could be left at the mercy of whatever trades have to get done at this time of year...And as December tends to be a seasonally weak month for the Dollar, the greenback could suffer as we near Christmas."

New data released after the New York close on Friday showed hedge funds and other institutional traders are now less bullish on the price of Gold Investment than at any time since July 2005 - just before gold kicked higher and rose more than 70% over the next seven months.

At 66.9%, the bull-bear ratio of Gold Futures and options held by so-called "large speculators" also pointed to the continued loss of leverage and credit for hedge fund traders, with the total volume of US gold derivatives shrinking by one-third since mid-July.

Commercial traders, in contrast - meaning those gold traders working for refiners, fabricators and wholesale jewelers commonly known as the "smart money" - cut their bearish bets on the gold price to a 16-month low.

These participants in Comex gold trading are naturally 'short' of gold at any one time, since they are in the business of selling gold by defintion. They look to protect their profits by hedging on the futures market, but last week's move raised their bull ratio to 42.7%, a seven-year record.

After the price of gold rose for the last two weeks running against the Dollar, "eleven of 23 traders, investors and analysts surveyed from Mumbai to Chicago on Nov. 13 and Nov. 14 advised Buying Gold ," reports Bloomberg News in its weekly survey today.

"Six said to sell, and six were neutral."

My reaction: Two key points in this article:

1) Hedge funds and other institutional traders turning bearish on gold is a positive sign. It means that the selling, as speculative money come out of gold, is nearing an end.
2) The "smart money" is cutting their bearish bets on gold. No real surprise.

With the bailout money is disappearing at an incredible pace (means size of 700 billion bailout will be increased) and November 28 looms large for December gold contracts, Gold is now set to explode upwards.

Posted by Eric deCarbonnel at 7:57 PM

Don't Buy Gift Cards

2008-11-17T15:55:00.000-08:00

Linens & Things also. Guess we had better be very careful of gift certificates this Christmas.
Just in case you have them, use those Gift Certificates or you may lose them.
Nationwide store closings
STORE CLOSINGS AND LAYOFFS
If you have gift cards, hurry up and use them!!
Just passing this along - FYI

Ann Taylor closing 117 stores nationwide. A company spokeswoman said the company hasn't revealed which stores will be shuttered. It will let the stores that will close this fiscal year know over the next month

Eddie Bauer to close more stores. Eddie Bauer has already closed 27 shops in the first quarter and plans to close up to two more outlet stores by the end of the year.

Cache closing stores. Women's retailer Cache announced that it is closing 20 to 23 stores this year.

Lane Bryant, Fashion Bug, Catherines closing 150 stores nationwide. The owner of retailers Lane Bryant , Fashion Bug , Catherine's Plus Sizes will close about 150 under performing stores this year. The company hasn't provided a list of specific store closures and can't say when it will offer that info, spokeswoman Brooke Perry said today.

Talbots, J. Jill closing stores. About a month ago, Talbot's announced that it will be shuttering all 78 of its kids and men's stores. Now the company says it will close another 22 under performing stores.. The 22 stores will be a mix of Talbot's women's and J. Jill , another chain it owns. The closures will occur this fiscal year, according to a company press release.

Gap Inc. closing 85 stores. In addition to its namesake chain, Gap also owns Old Navy and Banana Republic . The company said the closures - all planned for fiscal 2008 - will be weighted toward the Gap brand.

Foot Locker to close 140 stores. In the company press release and during its conference call with analysts today, it did not specify where the future store closures - all planned in fiscal 2008 - will be. The company could not be immediately reached for comment

Wickes is going out of business. Wickes Furniture is going out of business and closing all of its stores, Wickes, a 37-year-old retailer that targets middle-income customers, filed for bankruptcy protection last month.

Goodbye Levitz / BOMBAY - closed already. The furniture retailer, which is going out of business. Levitz first announced it was going out of business and closing all 76 of its stores in December. The retailer dates back to 1910 when Richard Levitz opened his first furniture store in Lebanon , PA. In the 1960's, the warehouse/showroom concept brought Levitz to the forefront of the furniture industry. The local Levitz closures will follow the shutdown of Bombay ..

Zales, Piercing Pagoda closing stores. The owner of Zales and Piercing Pagoda previously said it plans to close 82 stores by July 31. Today, it announced that it is closing another 23 under performing stores. The company said it's not providing a list of specific store closures. Of the 105 locations planned for closure, 50 are kiosks and 55 are stores.

Disney Store owner has the right to close 98 stores. The Walt Disney Company announced it acquired about 220 Disney Stores from subsidiaries of The Children's Place Retail Stores. The exact number of stores acquired will depend on negotiations with landlords. Those subsidiaries of Children's Place filed for bankruptcy protection in late March. Walt Disney, in the news release, said it has also obtained the right to close about 98 Disney Stores in the U.S. The press release didn't list those stores.

Home Depot store closings. (E. Brunswick, Rt 18 just put up their closing sign) ATLANTA - Nearly 7+ months after its chief executive said there were no plans to cut the number of its core retail stores, The Home Depot Inc. announced Thursday that it is shuttering 15 of them amid a slumping U.S. economy and housing market. The move will affect 1,300 employees. It is the first time the world's largest home improvement store chain has ever closed a flagship store for performance reasons. Its shares rose almost 5 percent. The Atlanta-based company said the under performing U.S. stores being closed represents less than 1 percent of its existing stores. They will be shuttered within the next two months.

CompUSA (CLOSED) clarifies details on store closings. Any extended warranties purchased for products through CompUSA will be honored by a third-party provider, Assurant Solutions. Gift cards, rain checks, and rebates purchased prior to December 12 can be redeemed at any time during the final sale. For those who have a gadget currently in for service with CompUSA, the repair will be completed and the gadget will be returned to owners.

Macy's - 9 stores

Movie Gallery - 160 stores as part of reorganization plan to exit bankruptcy. The video rental company plans to close 400 of 3,500 Movie Gallery and Hollywood Video stores in addition to the 520 locations the video rental chain closed last fall.

Pacific Sunwear - 153 Demo stores

Pep Boys - 33 stores

Sprint Nextel - 125 retail locations. New Sprint Nextel CEO Dan Hesse appears to have inherited a company bleeding subscribers by the thousands, and will now officially be dropping the ax on 4,000 employees and 125 retail locations. Amid the loss of 639,000 postpaid customers in the fourth quarter, Sprint will be cutting a total of 6.7% of its work force (following the 5,000 layoffs last year) and 8% of company-owned brick-and-mortar stores, while remaining mute on other rumors that it will consolidate its headquarters in Kansas . Sprint Nextel shares are down $2.89, or nearly 25%, at the time of this writing.

J. C. Penney, Lowe's and Office Depot are scaling back

Ethan Allen Interiors: The company announced plans to close
12 of 300+ stores in an effort to cut costs.

Wilsons the Leather Experts - 158 stores

Pacific Sunwear will close its 154 Demo stores after a review of strategic alternatives for the urban-apparel brand. Seventy-four under performing Demo stores closed last May.

Sharper Image: The company recently filed for bankruptcy protection and announced that 90 of its 184 stores are closing. The retailer will still operate 94 stores to pay off debts, but 90 of these stores have performed poorly and also may close..

Bombay Company: (Freehold Mall store closed) The company unveiled plans to close all 384 U.S.-based Bombay Company stores. The company's online storefront has discontinued operations.

KB Toys posted a list of 356 stores that it is closing around the United States as part of its bankruptcy reorganization. To see the list of store closings, go to the KB Toys Information web site, and click on Press Information

Dillard's to Close More Stores. Dillard's Inc. said it will continue to focus on closing under performing stores, reducing expenses and improving its merchandise in 2008. At the company's annual shareholder meeting, CEO William Dillard II said the company will close another six under performing stores this year.

Christmas Upsde Down

2008-11-16T15:17:00.000-08:00

Beck on Capitalism, the Fed Takeover of Banks

2008-11-15T17:38:00.000-08:00

411 on 401K -911

2008-11-14T19:32:00.000-08:00

Dollar Collapse

2008-11-14T13:38:00.000-08:00

Wal-Mart Sales Up 10% , Glenn Beck

2008-11-14T13:11:00.001-08:00

GLENN: I just have to laugh every time I hear -- and it's up on the Drudge Report today -- that Wal-Mart has shown an increase of 10%. And I laugh because I think to myself, "Wait a minute, the evil Wal-Mart? No. Wait a minute, I thought they were the ones who were destroying America." Now all of a sudden everybody's starting to go and shop at Wal-Mart. They are seeing an increase of 10% from people who are like, "Yeah, I don't think Macy's is really the place for me right now; I think I better go to Wal-Mart. They come in and they actually help save. Why? Because they've got value. What a crazy idea, huh? And here they come in and they're riding in and people are coming to Wal-Mart. Wal-Mart wouldn't be here, by the way, if they would have done all the things that the people who tried to destroy them wanted them to do. And now they come in and they have a big increase. I'm wondering if anyone in Washington -- let me think about who could possibly say this. Well, I can't think of a single soul. Somebody might say, these people in Wal-Mart are making too much profit. While everybody else is falling apart, we've got to take half their profits. Did that sound like my Barney Frank? Gosh, I'm sorry. There seems to be no Great Depression at Wal-Mart. Other companies are talking about the worst periods in their history. Wal-Mart has increased its sales by 7.5%, increased earnings almost 10% last year. "That's the evil kind of profit I was talking about." How are they doing this in this economy and what could we possibly learn from Wal-Mart? Well, maybe America is finally starting to wake up from the, oh, who is that? Paris Hilton, and their -- was I just thinking out loud? I'm sorry. Maybe America is starting to think to themselves, "Gee, I don't know. I think there's more to life than little dogs and purses." I mean, it's just me. People are starting to look for value because America's starting to struggle. You know what I really regret on this program is that people have -- I mean, look. Dire times are coming today. I don't mean just prepared for them like, go for your guns. I mean, you need to be prepared for them spiritually. You need to be prepared for them. You need to know who you are. You need to know what you believe in. You need to America is. You need to know what our values are, what made us great. And it was freedom. It was capitalism. It was being fair. It was being a good person. It was saying what you meant and meaning what you said. It was a cowboy contract. It was looking a man in the eye and shaking hands and saying, my word is as good as any contract that you could get. We need to be able to fall back on those people. We need to become those people again.

But the thing I regret on this program is as I delivered these messages, as I say, "Hey, tough times are coming," all the people here for some reason is, "It's the apocalypse; Jesus is coming; run for your lives; the entire country's going to burn to the ground." I don't believe any of that -- well, I do believe Jesus is coming and the "Run for your life" part, but I don't believe that the country's going to burn to the ground. I think we're going to have tough times. But I mean, let's look at the toughest times in American history. The Civil War. Yes, did cities burn to the ground? Yep. Did commerce still happen? Did people still have families? Did people still have food and homes? Did they struggle? Yes. Did they die? Yes. But did we survive? Yes. And that's -- when I say dark, dark times are coming, look at the worst time in American history, the Civil War. That was a dark time. But life still went on. And so when I say look out, here comes the economy, something that we've never faced before, you are still going to have to go out and buy stuff. You are just going to have to be careful to get your money's worth. Things are still going to happen.

You know, I was talking to somebody the other day about the state of the bookstores right now. They are having 30% drops in sales of books. I know, great time to release a book, isn't it? My timing's always great. But what they found is that people are still buying books but they are only going out and they are buying that one book, the book that they thought, this is a book I have to have. They are not going into a bookstore and they are not buying three, four books, you know? Sometimes you go into a bookstore and you are like, okay, that's the book you want but you're like, oh, but this one looks really good. That's not happening now. They buy the book they want and then they move on. Luckily for me my childhood was screwed up enough that it's being -- it's now being purchased in book form by people who can't seem to turn their head from a fatal car accident.

But why is Wal-Mart succeeding? Why is Wal-Mart succeeding while others fail? It's easy. They didn't do all the things the government is telling us we now need to do. They didn't overspend, they didn't organize with labor. They don't have giant labor problems. They pay their workers fairly but they are not locked into long-term union deals with gigantic benefits that make the stores impossible to run at a profit. They haven't been pressured, you know, they haven't caved to the pressure of the hundreds of politicians and activists. They have been -- think about Wal-Mart. They have been attacked by entire cities. "There will be no Wal-Mart in our town." That's fine. Even Jeremiah Wright is out to boycott Wal-Mart. But they stayed true to their sensibilities.

You know, we always talk about running our government like a business. I think Wal-Mart is one of the only businesses that runs themselves like a business today. Everybody else is running their business like a government. You've got to give people good value. You've got to give people a good price. And when politicians kick them out of a city, they will build a store right across the border and it will be packed. Why? Because people want and now really need the services that they provide. Along with that, they are fair with their employees. They offer them opportunities to move up with the company. You work your butt off at Wal-Mart, you move up in the chain. You don't work your butt off, hey, get the hell out of my store. They reward people who have made them the company that they are today. Isn't that the way we all should be running our business? Isn't that the way we should be running our country? Congress, you haven't performed; get the hell out of my office. Why are we wasting the lights? I mean, have you seen the electricity bill? Let's turn the lights off at the capitol. We'd get a lot more done.

For whatever reason Wal-Mart is vilified. Despite the fact that it gives people who don't have a ton of money a chance to save money on things they need. Despite the fact that they've saved Americans over a billion dollars on prescription drugs by charging only $10 for three months of medication, $10. Saved America a billion dollars on prescription drugs because they felt it was the right thing to do. But do they get recognized for it? Despite that they put up medical clinics in their stores, provided medical services to tens of thousands of people with no insurance at a low cost and yet, they are the enemy, and I predict that Wal-Mart and other stores like it will be made the enemy even more by big business, by big labor, by the United States government. They will say, "Why is Wal-Mart a, why do they have a 10% profit?" Which, by the way, is two percentage points higher than big oil and 85 percentage points lower than hedge funds. Hmmm. I wonder which firm makes it through the end of this storm: Wal-Mart or hedge funds? Wal-Mart and your family, if your family is built on values like Wal-Mart, if your business is built on values, if you have done the wrong things in the past, stop it right now. Just change today and you'll not only survive but you'll thrive because those American values, American values will always win in the end. Politicians will come and go. American values won't.

Retail Christmas ... a thing of the past

2008-11-13T21:10:00.000-08:00

FOREX for Safety??

2008-11-13T19:44:00.000-08:00

Saudi's Buy $3.5 Billion in GOLD , Quickly

2008-11-13T17:55:00.000-08:00

Peter J. Cooper reports on his weblog that Saudi Arabia buys $3.5bn of gold in two weeks:

(emphasis mine)

November 13, 2008
Saudi Arabia buys $3.5bn of gold in two weeks
Filed under: Gold & Silver — peterjcooper @ 8:55 am

There has been an unprecedented surge in Saudi gold purchases in the past two weeks with over $3.5 billion being spent on the yellow metal, reported Gulf News citing local industry sources.

Gold market expert Sami Al Mohna told the leading regional newspaper that this buying had

Gold market expert Sami Al Mohna told the leading regional newspaper that this buying had substantially increased the gold reserves of the country: ‘Many Saudi investors see this as the right time for making investments in gold as the price is the most reasonable one at present’.

He said gold was seen as a traditional safe haven at a time of global financial turmoil. Gulf regional stock markets have fallen very sharply since early October, leading to an exodus of cash which needs to find a safe haven.

Gold is currently trading at prices similar to a year ago, and 30 per cent off its March peak. Saudi investors clearly think this is the right time to buy and are piling into gold.

News about the Saudi gold rush is bound to fuel speculation about the alleged large physical gold transactions that have been taking place at prices well above the spot price set in the futures market. It is very unlikely that such a large hoard of physical gold could have been bought for the depressed current price.

Market analysts such as the legendary gold bug Jim Sinclair have pointed out that if less than two thousand millionaires insisted on delivery of physical gold at the end of their futures contracts, as is their legal right, then the spot gold market would jump to new highs.

Saudi Arabian investors have spotted a bargain, and it may be a much better one than they think.

My reaction: Saudi Arabia has it right. Gold prices are an amazing bargain at this level (as long as you can find physical gold to buy). Also, Remember that November 28th is when we find out how many investors are calling for delivery on their December COMEX gold contracts.

Looking Overseas, Not China

2008-11-13T10:02:00.000-08:00

One place to find these [attractive] stocks is in emerging markets. The dramatic growth in foreign exchange reserves of the BRIC nations makes them attractive.

As you can see in the chart below, the $260 billion in combined reserves in those four countries in late 2000 is less than India’s reserves now and is but a small fraction of the nearly $2 trillion held by China. Most of those reserves are held in dollars.

These dollar reserves, and the hundreds of billions more held in the Middle East and other emerging markets, provide a valuable buffer in uncertain economic times. These reserves were far smaller a decade ago, when both Russia and Asia went through currency crises.

And with the dollar’s recent rally, these reserves are worth more than they were just a couple of months ago. The size of reserves and their enhanced value could reinvigorate these key emerging markets and accelerate their economic recovery.

I am often asked why the dollar and yen have been so strong lately while other currencies and commodities have been clobbered. The Reuters/Jeffries CRB Commodities Index, for example, lost 24 percent of its value in October -- its worst month ever.

Many banks and hedge funds have borrowed in dollars and yen and used that money to invest in euros, emerging markets, commodities and equities. Now they are being forced to pay back these loans, so they have had to sell commodities, stocks, emerging markets and euros to get dollars and yen. This has created a buying frenzy in dollars and yen, and in turn exaggerated market volatility.

Many of these emerging markets companies are trading at two to six times earnings, compared to the S&P 500 average at more than 21 times earnings. This disparity can’t last forever, and as liquidity is pumped into the system, the indiscriminant selling will stop and global stock prices will firm up and begin their return to historic P/E ratios.

Looking at Asia, the MSCI AC Asia ex-Japan Index has fallen off abruptly in recent months, with many stock markets trading at price-to-book ratios near their lows during the 1998 Asian meltdown.

Risks remain in emerging markets, but with valuations so low in a region whose economies are so much larger and more diversified and resilient than they were a decade ago, the opportunities look increasingly attractive.

My reaction: With the dollar's collapse on the horizon and stocks that are trading at ridiculously low PE ratios, emerging markets with large dollar reserves, especially China, look like an attractive investment. However, the global economy Is still entering a severe recession, so it is critical to choose the right stocks. Here are a few themes to keep in mind when looking for possible investments in emerging markets:

Not all currencies will benefit equally from the dollar's collapse. European countries will benefit the least and Asian countries the most. The size of each country's dollar reserves is a good indicator of how much its currency will benefit from the dollar's fall.
Cheaper oil. The biggest impact of the dollar's collapse will be to curtail US oil consumption. The result means more oil at a cheaper price for the rest of the world, and foreign companies with high fuel costs will benefit.
Cheaper US exports. The dollar collapse will make US export cheap for the rest of the world. Foreign companies that make large purchases from the US (ie: Chinese companies buying US coal) will benefit.
Bankrupt US consumer. All company which sell heavily to US consumer should be avoided. The dollar's collapse will force Americans to spend more of their income on food and gas, leaving little for expensive chinese imports (they will be expensive after the dollar's fall).

Sidenote: Anyone know how global tech companies charge for their services? Does microsoft bill Chinese/Indian companies in dollars? If so, it could drastically reduce the tech costs for companies in emerging markets.

Uncle Milte Explains Banks and the FED

2008-11-12T19:35:00.000-08:00

Banks , Gold and Dictators

2008-11-12T18:11:00.000-08:00

Rob, Urban Survivalist

2008-11-12T17:13:00.000-08:00