Wednesday, June 30, 2010

Gold price manipulation: conspiracy or semantics?

Jeff Gundlach, DoubleLine

Jeff Gundlach quotes:
Job growth in the government sector, he said, is virtually self-defeating from a fiscal standpoint. “Government workers are being paid with taxes on borrowed money,” he said. “If you are going to create government jobs, you are just borrowing more money. Those aren’t real jobs.” The net result is that we are mired in a jobless recovery.

Fed economist: bloggers are stupid

Right, and the Fed has such a good track record on forecasting economic cycles and financial crises.

UN recommends abandoning USDollar as global reserve currency

It's been suggested by others, but now the UN is recommending abandonment of the USDollar as the reserve currency in favor of the IMF's Special Drawing Rights (SDR's).

A new United Nations report released on Tuesday calls for abandoning the U.S. dollar as the main global reserve currency, saying it has been unable to safeguard value.

"The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency," the U.N. World Economic and Social Survey 2010 said.

The report supports replacing the dollar with the International Monetary Fund's special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.

"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency," the U.N. report said.

It said a new reserve system "must not be based on a single currency or even multiple national currencies but, instead, should permit the emission of international liquidity (such as SDRs) to create a more stable global financial system."

Tuesday, June 29, 2010

Silver streaking independent of economy

BIS warns financial system vulnerabilities

Speaking of the BIS, their report warns of another impending financial system collapse if structural debt problems aren't treated.

“When the transatlantic financial crisis began nearly three years ago, policymakers responded with emergency room treatment and strong medicine: large doses of direct support to the financial system, low interest rates, vastly expanded central bank balance sheets and massive fiscal stimulus. But such powerful measures have strong side effects, and their dangers are beginning to become apparent.”

“Here are the worst problems arising now from the continued use of the extraordinary programmes: Direct support is delaying vital post-crisis adjustment and runs the risk of creating zombie financial and non-financial firms. Low interest rates at the centre of the global economy are discouraging needed reductions in leverage, thereby adding to the distortions in the financial system and creating problems elsewhere.”

“The sustained bloat in their balance sheets means that central banks still dominate some segments of financial markets, thereby distorting the pricing of some important bonds and loans, discouraging necessary market-making by private individuals and institutions, and increasing moral hazard by making it clear that there is a buyer of last resort for some instruments. And the fiscal stimulus is spawning high and growing government debt that, in a number of countries, is now clearly on an unsustainable path.”

“The financial disruptions in the first half of 2010 have brought the fragility of the industrial world’s financial system into stark relief: a shock of virtually any size risks a replay of the events we saw in late 2008 and early 2009. The sovereign debt crisis in Greece is clearly jeopardising Europe’s nascent recovery from the deep recession brought on by the earlier crisis.”

“Unlike then, however, we have hardly any room for manoeuvre. Policy rates are already at zero and central bank balance sheets are bloated. Although private sector debt has started to decline, public debt has taken its place, with sovereign fiscal positions already on an unsustainable path in a number of countries. In short, macro-economic policy is in a vastly worse position than it was three years ago, with little capacity to combat a new crisis – it will be difficult to find a source of further treatment should another emergency arise. Regaining the ability to react to economic and financial crises, by putting policies onto sustainable paths, is therefore a priority for macroeconomic policy.”

Central bank and BIS intervention--circa 1983

This should lay to rest any questions whether central banks intervene in foreign currencies, interest rates, and gold markets.

Russian spies--and gold

Eight individuals were arrested Sunday for allegedly carrying out long-term, "deep-cover" assignments in the United States on behalf of the Russia, the Justice Department announced today. Two additional defendants were also arrested Sunday for allegedly participating in the same Russian intelligence program within the United States.

Information they were seeking was pretty broad based but it included at least one report about gold. Moscow relayed back to the spies that the gold report was "very valuable" and reported that it was passed on to Russia's finance minister.

The consequences of negative real interest rates

Monday, June 28, 2010

Rick Santelli vs. Steve Liesman on tax cuts vs. deficit spending

ETF gold holdings rise

Why the unemployment rate will soar

David Rosenberg remains bearish on equities
* Secular bull and bear markets typically last 16 years

* During the secular bear market, most if not all of the prior gains made (again,in inflation-adjusted terms) in the prior secular bull condition, are wiped out. Look closely at the chart and there is a very subtle upward drift – the secular low points rise over time, albeit fractionally.

Assuming inflation averages 2% annually and that 2016 marks the end of this secular bear episode (seeing as it began in 2000) then the historical pattern would suggest a test of 5,000 on the Dow as the ultimate trough (at that point, gold will likely be 5,000 too). This does not preclude cyclical rallies along the way, but these will be “bear market rallies” such as we saw from March 2009 to April 2010 and investors should not be tempted into any other strategy than to rent these rallies and not own them.

Chinese accumulating gold
...China's Cheng Siwei, a high-ranking economic representative is quoted as follows: "Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not stimulate the market...China is buying the dips."

Merrill Lynch bullish on gold

Saturday, June 26, 2010

The First Great Depression vs. today's Second Great Depression

Confidence collapsing, gold surging

There comes a point in time when reality sets in en masse and people awaken from their self-imposed slumber. The ongoing destruction in our economy is not something people want to believe, but it is something people regrettably have to face. President Obama too was granted the benefit of the doubt until it became impossible for even his most ardent supporters to defend his actions. There is clearly a collapse in confidence underway in America- one that I have been expecting for quite some time. The result of collapsing confidence will be new record highs in gold that will blow away mainstream projections.

Thursday, June 24, 2010

Super gold bulls

Thanks to Dick for finding this golden nugget. I don't agree with all these concepts (or the extreme targets), but I don't necessarily disagree with any of them either. Timing, targets, logic, and actual sequencing of events is not a given, but the case for gold bullishness seems convincing.

See disclaimers on the side bar.

Disclosure: long gold and silver.

Wednesday, June 23, 2010

City of Maywood, CA lays off all city employees

The city of Maywood will lay off all city employees and begin contracting police services with the Los Angeles County Sheriff's Department effective July 1, officials said.

Congress fails to pass a 2010 budget

In an unprecedented move, Congress will fail to pass a budget for 2010. House Republican Paul Ryan (WI) and House Republican John Boehner (OH) sound off:

With each passing week, fresh warning signs from the markets, government reports, or events overseas underscore the need to tackle our dire fiscal and economic picture. Yet Congress stubbornly refuses to acknowledge this reality, as each week results in a fight over how much further we should expand the deficit and how much deeper should we fall into debt.

The starting point for tackling this challenge is the federal budget. For families, organizations, and businesses alike, a budget sets priorities and forces tough decisions.

Governments are not exempt from the need to budget. Yet, in a stunning abdication of responsibility, leaders in the House of Representatives have failed to even propose a budget -- a feat never before "achieved" since the enactment of the 1974 Budget Act and unacceptable in the face of a looming debt crisis.

The Democrats' budget collapse further erodes confidence in Washington's intent to get federal spending and debt under control -- and creates even greater concern about impending tax increases that will further hinder the private-sector job creation Americans desperately need. Washington's failure to control spending undermines sustainable economic growth and job creation.

Democratic leaders have made the political calculation that it is a better to take a pass than to pass a budget. The president's "new era of responsibility" has hit a new low.

Rob Arnott warns of Apple shares surging

See disclaimers on the side bar.

Disclosure: no position in AAPL at the present time.

New home sales plunge 33% in May

How's that recovery in the housing industry going?

Not only have May new home sales dropped to a record low since statistics have been recorded, but March and April figures have been revised lower also.

This is consistent with my thesis that this "jobless" recovery is not a recovery at all. Watch how government economists and the financial media try to spin this latest data.

Monday, June 21, 2010

Gold is no longer a fringe asset

Here's something on price from Ian McAvity, a longtime and respected gold market watcher, in his latest Deliberations on World Markets newsletter: "Gold is about 50 percent above (its) 1980 peak, while total U.S. credit market debt has increased 12-fold and the S&P 500 is about 10X where it was in 1980... it would take a rush to $5,479 to replicate the 1980 peak (I repeat that is not a forecast, it's a technical observation from an overlay of the cycle of the 1970s on the cycle from 2001) Simply put, any talk of a gold bubble is utter nonsense... While the markets toss the inflation/deflation debate back and forth, I believe the key driver of gold is monetary."

And for an even bigger number, I turn to Barry Cooper at CIBC in Toronto. The chart above shows the relationship of the gold price and U.S. government debt. He says that if somehow a new gold standard were to be created, the gold price would have to be $46,000 per ounce if all U.S. government debt had to be backed by bullion. We don't believe that a Bretton Woods II agreement is coming, but for those strict monetarists who support a return to the gold standard, this estimate provides one view on how it could impact gold.

California and other states on verge of failure

Will the USDollar continue its descent?

Zerohedge blasts Keynesian economists

The article pertains to the Chinese depegging of the yuan against the USDollar, but Tyler Durden, the alias of the founder of, has some interesting commentary on governments, academic economists, and central bankers.

Which in turn leads us to just one question - how long before America's universities stop teaching economics and expose it for the sham science it is and always has been, and out its professors, as nothing more than hollow charlatans preaching a gospel of Keynesian lies.

Since Central Bankers all fall under the "economist" umbrella, as it is all too clear even to the remaining money printers out there that the days of extend and pretend are over, and everything is just empty rhetoric to assuage the masses, and assorted political puppets, as the terminal winddown accelerates. We look forward to, and gladly will be entertained, by many more such hours in which the economist and bankers of the world increasingly turn on each other as the last days of Keynesianism arrive.

The Oldest-Established Store Of Value Moves To Center Stage

That gold and the dollar are fundamentally inversely correlated to each other is obvious. One bets on gold because one is deeply skeptical that governments will fulfill their promises.

So why are they both in a mini-bull market?

So why didn’t inflation come roaring back when Bernanke doubled the Monetary Base and M-2 was climbing at double-digit rates?

And why didn’t inflation come back when central banks across the OECD were growing their monetary bases and money supplies were climbing? And why did gold take off to record levels when money supply growth began to dwindle and actually turn negative?

We believe that Gold’s recent rise began when investors sought a classic inflation hedge, but its real run came when deflation risks were far more obvious than any evidence of inflation.

As we have written in these pages, gold is the classic store of value. It should retain its value under both inflationary and deflationary conditions.

That means a great time to buy gold to make capital gains is when inflation is rising.

It also means a great time to buy gold to conserve existing wealth is when (1) prospective risk-adjusted returns on bonds and stocks look unattractive because the economic outlook is for slow growth with (2) a risk of a renewed downturn that would hammer the value of stocks—particularly financial stocks—and real estate anew, and (3) bond yields are too low given the endogenous risks in the currencies in which they are issued and (4) the range of future fiscal deficit forecasts is from grim to ghastly.

What we believe is unfolding is a rush into gold by individual investors who look at the astronomic growth in financial derivatives—particularly collateralized debt swaps—and government deficits at a time when the effects of demographic collapse are finally being understood. According to some guesstimates we have heard, the supply of outstanding financial derivatives may be in the $70 trillion range, dwarfing the combined value of money supplies and debts. The total value of gold is so minuscule in comparison to the supply of these software-spawned instruments that it cannot be any real help in stabilizing global finances—but it can be a haven for investors seeking to protect themselves against an implosion of majestic proportions.

That is why gold and the dollar can—if only for a brief time—rise together, as investors see that the only major currency alternatives to the dollar—the yen and the euro—are backed by rising national debts, rising numbers of pensioners, falling working-age populations, falling real estate prices, and a falling OECD share of global GDP.

So…as a store of value for future generations,

If you can no longer believe in residential real estate,
and you can no longer believe in bank deposits,
and you can no longer believe in the dollar,
and you can no longer believe in the yen,
and you can no longer believe in the euro…
What can you believe in?
How about gold?

It’s so old, it’s new again.

It can’t be synthesized.

It’s been despised by every liberal economist since Keynes.

Meredith Whitney says a double dip in housing is a certainty

Who is Meredith Whitney? She's one of the few banking analysts who foresaw the subprime mortgage crash.

Saudi gold reserves double

Much like the Chinese surreptitiously added to their gold reserves, the Saudis announced they more than doubled their gold reserves. Central bankers are now net buyers of gold, not net sellers as they had been for decades. Net selling places selling pressure on gold, driving prices downward. The reverse is also true: central bank net buying adds buying pressure, driving prices upward. That's also why central banks don't officially announce buying programs in a timely manner because they desire to accumulate gold at lower prices.

The cat is out of the bag as more central banks will announce they have added gold to their reserves, which can only be bullish for gold prices.

China turns table on developed nations

The Chinese government has acquiesced to demands of revaluating their yuan. Now the onus is on debtor nations to clean up their fiscal house.

Reading between the lines (as any astute investor should do), the not-so-subtle unintended consequence is the days of cheap Chinese imports will come to an end somewhere down the road. Inflation will be compounded by stagnant growth, lowered income and a reduced standard of living for US citizens. As Congressman scapegoat the Chinese for currency "manipulation", it'll be a case of "be careful what you wish for." A rising yuan means higher wages and a rising standard of living for Chinese citizens, but lower wages and a reduced standard of living for US citizens, relatively and in real terms.

Apparently, US lawmakers skipped the lectures on increased competitiveness and productivity.

Gold reclaims currency status as global financial systems unravel

Friday, June 18, 2010

Obama and Sarkozy at work

Greenspan warns of US budget deficit

This is another example of a former government official speaking out now that he is no longer bound by political restraint.

Thursday, June 17, 2010

US is weakest sovereign debtor

According to Scotia Capital, the US is the weakest sovereign debtor of them all, including the PIIGS countries.

Wednesday, June 16, 2010

Federal Reserve Governor Fisher warns against Federal Reserve

A not very long time ago, in a galaxy known as the Milky Way, the member of an occult group of sinister individuals warned that should this group ever get to a point where it believed it could fix fiscal problems through printing money, this would present "a paramount risk to the long-term welfare of the U.S. economy." The group is better known as the Federal Reserve and the individual was Dallas Fed president Richard Fisher. The same Richard Fisher, who recently wrote about the FinReg unaddressed concept of how Too Big To Fail will lead to another massive systemic crash, went as far as saying that "even the perception that the Fed is pursuing a cheap-money strategy to accommodate fiscal burdens" would be disastrous, and that "the Federal Reserve will never let this happen. It is not an option. Ever. Period."

With observations such as that "we know from centuries of evidence in countless economies, from ancient Rome to today’s Zimbabwe, that running the printing press to pay off today’s bills leads to much worse problems later on", one may only hope that all those who advocate even more rampant spending and irresponsible money printing to "fix" the economy, will finally see the light. Alas, mired in their own stupidity, they won't. And Fisher's words, so prescient in 2008, yet so ignored, will suffer the same fate today, and the Fed will continue on its way to singlehandedly destroying this once great country.

Silver buying guide

Bernanke: "Things will come apart..."

Wow, Ben Bernanke speaks the truth (finally):

Federal Reserve Chairman Ben Bernanke delivered a frank assessment to Congress on the fate of the economy if entitlement programs are not restructured. On Wednesday, Bernanke warned that “things will come apart” if Congress allows the federal entitlement programs and the deficit spending they cause to continue on their unsustainable path.

Speaking at a hearing of the House Budget Committee, Bernanke offered his dire prediction after being asked what would happen if Congress did not take action to head off the impending crisis brought on by unsustainable entitlement spending, led primarily by Medicare.

“The entitlement programs are not self-funded,” Bernanke said, “they are unfunded liabilities. They are the single biggest component of spending going forward.”

“There are various ways you could address this – you can restructure entitlement programs [or] you can cut other things – but at some point you need to address the overall budgetary situation. If you don’t, you’ll get a picture like this one [pointing to a graph showing a steep rise in interest rates and debt] where interest rates are rising and debt outstanding is growing exponentially.

“At that point, things will come apart,” he said. “This [rise in debt] will stop, but it might stop in a very unpleasant way in terms of sharp cuts, a financial crisis, high interest rates that stop growth, [or] continued borrowing from abroad.”

Monday, June 14, 2010

Uncertainty restores glitter in gold

Thanks to Kitty for this article about gold going mainstream.

Welcome to the party, men and women. The ride is just beginning.

See disclaimers in the side bar.

Disclosure: long physical gold and silver, long precious metals mining shares.

Friday, June 11, 2010

Passport Capital on gold

This is a long treatise by Passport Capital, but reading the first page should give the reader an excellent primer on the bullish thesis for owning physical gold.

Reasons to own gold, by John Embry

See disclaimers in the side bar.

Disclosure: long physical gold, long gold mining shares.

Debt is spreading like cancer
The economic situation today is drastically worse than a couple years ago, and the euro is doomed as a concept, Nassim Taleb, professor and author of the bestselling book "The Black Swan," told CNBC on Thursday.

"We had less debt cumulatively (two years ago), and more people employed. Today, we have more risk in the system, and a smaller tax base," Taleb said.

"Banks balance sheets are just as bad as they were" two years ago when the crisis began and "the quality of the risks hasn't improved," he added.

The root of the crisis over the past couple of years wasn't recession, but debt, which has spread "like a cancer," according to Taleb, who is now relieved that public attention has shifted to debt, instead of growth.

Thursday, June 10, 2010

My blog has been restored

Thanks to the diligent folks at Google/Blogger, to include usernames Meow13 and nitecruzr, this blog has been restored.

I started another blog in the interim, which can be accessed here:

I learned a few things along the way, not just about processes, privacy, spam bots, but also the internet itself. I will continue to blog here in the foreseeable future.

Thanks for reading.