Google Analytics

The internet and specifically--the blogosphere, may be the last free market frontier, an electronic ecosystem still largely unfettered by taxes, regulation, and government meddling (well, unless you're in China and a few other countries). Let's hope our government doesn't try to attack one of the few free market-driven industries left, where the little guy has as much chance to engage in content and commerce as the big corporate behemonths.

And Google Analytics can enhance the organizing, planning and marketing of that content. Based on their metrics, I can decipher the following information for this blog:

1) readers come from many countries: the US, Brazil, Canada, United Kingdom, South Korea, Australia, (not set)--could this be China?, Faroe Islands, Venezuela, Poland, Spain, India, Qatar, Bahrain, in order of frequency.
2) the pages per visit is 1.88
3) average time on site is 3:53 minutes
4) % of new visits is 37.30%

The data is carved up into geographic locations, referring site sources, bounce rate, search engines, direct traffic, visits, visitors, page views, etc.

Bottom line: you can never predict with accuracy who your audience is, and where they come from. But Google helps uncover some of the mysteries of the online world. If I was running a commerce website, I would definitely monitor these data sets more seriously, because it can reveal helpful data on content demand.

Gold backwardation--again

I was scanning the Bloomberg TV ticker tape after hours on Friday, when most traders in the US had gone home. Trading was resuming in Asia (their Saturday morning), and gold had gone into backwardation by at least $2, indicating a severe shortage in physical gold.

Here are a couple explanations on backwardation from previous blogs:

http://gregnguyen.blogspot.com/2009/01/contango-why-this-dance-is-important.html

http://gregnguyen.blogspot.com/2009/05/gold-in-backwardation-again.html

I'm not sure if the correct interpretation of backwardation means gold longs are starting to win the battle. It's probably more correct to surmise that shorts are losing the battle.

Disclosure: I am long physical gold and silver, and long gold and silver mining shares.

Unmasking the Fed

We can do something about the opaqueness of the Fed.

http://www.unmaskthefed.com/

There is a bipartisan bill seeking Fed transparency and accountability being passed around Congress, written by Republican Ron Paul, and endorsed by Democrat Alan Grayson.

Russia and China joining the anti-dollar party

It's not just rumor and rhetoric anymore:

http://en.rian.ru/russia/20091014/156468599.html

It's a resonating chorus of allies, enemies, and trading partners. In fact, foreign governments hate a weak dollar for several reasons:

1) USDollar weakness makes exports to the US more expensive, dampening their export-driven economies
2) it reduces the value of their reserves, which comprise of dollar-denominated assets like US Treasuries

Ultimately, dollar weakness should be stimulative domestically for these countries, as imports are cheaper, but it reduces the competitiveness of their exports. And since their economies depend more on exports and less consumerism, the weakness of the dollar threatens their attempts to stimulate their own economies.

The deal-breaker is the fact that the US Treasuries in their reserve accounts decline in value, and these IOU's are promises of repayment from a bankrupt borrower--the US government.

John Mack, outgoing CEO of Morgan Stanley

Warning: language inappropriate for children under age 18.

Upstairs, Mack was on the phone with Mitsubishi’s chief executive, Nobuo Kuroyanagi, and a translator trying to nail down the letter of intent.

His assistant interrupted him, whispering, “Tim Geithner is on the phone—he has to talk to you.”

Cupping the receiver, Mack said, “Tell him I can’t speak now. I’ll call him back.”

Five minutes later, Paulson called. “I can’t. I’m on with the Japanese. I’ll call him when I’m off,” he told his assistant.

Two minutes later, Geithner was back on the line. “He says he has to talk to you and it’s important,” Mack’s assistant reported helplessly.

Mack was minutes away from reaching an agreement. He looked at Ji-Yeun Lee, who was standing in his office helping with the deal, and told her, “Cover your ears.”

“Tell him to get fucked,” Mack said of Geithner. “I’m trying to save my firm.”

- excerpt from "Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System--and Themselves" by Andrew Ross Sorkin

I'm going to guess Mack's assistant didn't relay the message to Turbo Tax Timmy.

The USDollar's decline

This economist sounds like an Elliott Wave loonie until you find out he's the Chief Strategist for the trading desk at Japan's 3rd largest bank, Sumitomo Mitsui (ed. I've have business transactions with Sumitomo before). He also has credibility as he correctly called the Dow Jones Industrials decline to the 6500 level, and the decline of the USDollar relative to the yen.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a_A5nqmw9Dq8

The tragedy becomes comedic when fringe politicians like Ron Paul end up prescient, despite being marginalized by mainstream economists.

Must read for free market thinkers

It's long, but it explains how the financial crisis unfolded, and what the authorities should do next. Alas, our government will probably drop the ball again.

http://www.financialpost.com/story-printer.html?id=2069507

Alan Greenspan-isms

These quotes by former Fed Chairman Greenspan have been mentioned on this blog before, but since they are so relevant, I felt compelled to include them again:

Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies...What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment.

-Alan Greenspan, 9 Sep 2009

The other quote:

Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.

From "Gold and Economic Freedom" a 1966 Essay by Alan Greenspan

You can buy gold bars at Harrod's now

This is surreal, but you can now buy gold bullion and coins at the upscale London retailer Harrod's. Apparently, it's not just the Chinese, Russians, Brazilians, and middle Easterners who are nervous about the USDollar.

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/6328823/Harrods-to-sell-gold-bullion-for-first-time.html

IMF joining the liquidity party

The International Monetary Fund is now flooding global markets with liquidity, issuing Special Drawing Rights (SDR), which is basically a basket of the USDollar, the Euro, the Japanese Yen, and the Pound Sterling currencies. Due to liquidity exhaustion by the Fed, the IMF is now stepping up in its role as the international central bank, injecting SDR's into the global financial system. Is this inflationary? You decide.



Near the end of the interview, Rickards sums up well the disdain for gold from central bankers:

"The problem is: when you own gold, you're fighting every central bank in the world. Central banks hate gold, because it limits their ability to print money. But the market is the market; the market will do what it wants. Even the central banks are not bigger than the market."

Gold chart

http://www.the-privateer.com/chart/gold-pf.html

The chart for gold still looks bullish, with support at $975, and $875, should $975 not hold. In other words, the long-term bullish trend is in place unless support levels are broken. Either way, expect violent corrections, as the commercial shorts vigorously attempt to put a lid on prices.

The short USDollar / long precious metals trade is getting crowded, so corrections won't be unexpected.

Disclaimer: this chart only depicts previous price levels, and does not indicate future performance. Investing is risky, so consult with your professional investment advisor. Do your own due diligence.

Disclosure: I am long physical gold and silver, and long gold and silver mining shares.

Gold bugs

Whether gold bugs are government and central bank conspiracy theorists--or monetary realists, is debateable, but their bullish stance on the precious metal has paid off handsomely since the millenium. The following article postulates why the price of gold may continue to rise going forward.

http://www.ft.com/cms/s/0/f149a1a8-b4fe-11de-8b17-00144feab49a.html

Why raising taxes won't work

And why it never has worked, as capital will flee where it's treated better. Tax the productive to subsidize the non-productive, and capital flight will be pervasive.

http://moneynews.newsmax.com/streettalk/paterson_tax_rich_failing/2009/10/09/270445.html

Russia's growing influence in world energy markets

Russia threw their weight around late last year regarding natural gas pipelines which provide heat for European homes. They ended up cutting off Ukraine until the latter acquiesced to Russia's demands for higher prices. Meanwhile, the rest of Europe was held hostage and forced to accept higher prices as well.

The US recently scrapped plans to build missile defense shields in the Czech Republic and Poland, again bowing down to Russian threats, implied and otherwise.

Russia is now the world's #1 producer of crude oil, 25% higher than #2 Saudi Arabia. You think that has something to do with them getting their way recently?

Government bureaucracy

From Ross R., a reader of Doug Casey's newsletter:

Does anybody remember the reason given for the establishment of the Department of Energy.... during the Carter Administration? Anybody? No?

Didn't think so! Ready??
It was very simple... and at the time, everybody thought it very appropriate.
The Department of Energy was instituted on 8-04-1977… to lessen our dependence on foreign oil.
Hey, pretty efficient, huh???
And now it’s 2009 – 32 years later – and the budget for this “necessary” department is at $24.2 billion a year. They have 16,000 federal employees and approximately 100,000 contract employees. And look at the job they have done!
Good ole bureaucracy.
And now we are going to turn the banking system, healthcare, and the auto industry over to the same government?

Point, counter-point

Sell the dollar, go long commodities has been the easy trade so far. The endless printing of the USDollar has made the trade profitable.

But with USDollar bears out in full force, will we see a temporary bottom in the USDollar, and conversely, a temporary top in equities and precious metals? According to one sentiment indicator by MBH Commodity Advisors, 96% of traders are either bearish or flat on the dollar. History shows that when sentiment is that lopsided, it's best to take the opposite side of the extreme majority.

But other momentum trading rules declare you should never get in the way of a stampede, because you will just get trampled. My thoughts? We are due for a correction on the short dollar/long commodities trade, perhaps even a severe one of up to 20%. But longer-term, as long as central bankers worldwide continue to print their way out of this financial crisis, the overall short dollar/long commodities trend is still in place.

This is an opinion, and not a recommendation. Do your due diligence.

Disclosure: long gold and silver mining shares.

John Paulson

Most of us know who Warren Buffett is, because he is considered the world's best long-term investor, buying undervalued companies with high cash flow, solid balance sheets, and defensible, moat-like market share in their respective industries. In other words, he buys solid companies when they are cheap and under appreciated by the markets.

But the average person knows little of John Paulson. Paulson has been the most successful trader in recent years, making billions of dollars for his hedge fund by betting against subprime mortgage companies and agencies. He went against the crowd in doing so, making the unpopular bet that home values were artificially set too high, and that subprime borrowers would default en masse. He also bet against the banks that were making these reckless loans, and holding toxic assets.

In hindsight, he was a genius for placing these bets. But when he did make them, he would have been considered a lunatic for betting "against America", as most financial pundits, experts, and economists were predicting clear sailing for the economy, despite the looming subprime iceberg ahead. Most didn't see it coming, but he applied logical reasoning and was prescient enough to place huge bets on his investment thesis. The result was billions in profits for him personally and for his clients.

Flash forward to 2009, and John Paulson made another unpopular bet earlier this year. He gobbled up gold mining shares, the GLD ETF, and physical gold. In all, they represent the largest percentage of his holdings. Why did he do that? In his own words:

http://www.goldnewswire.net/gold-%E2%80%93-not-tomorrow-but-5-years-from-now

Once the Fed began directly buying Treasuries and mortgages, I lost faith in the dollar as a reserve currency for my assets... What I'm looking at is not where gold is going to be tomorrow, one week from now, one month from now, three months from now. What I'm looking at is where is gold going to be vis-a-vis the dollar one year from now, three years from now, five years from now.

And I think with a high probability at each of those points, gold will be higher than it is relative to the dollar today. That probability increases the further out you go, and the magnitude of that difference also increases the further out you go. So when I look at what the risk is, the risk to me is far more staying in dollars than it is in gold at this point. - John Paulson

What's happening and what could happen

Bad and worse, I'm afraid. The first article (see yesterday's reference to the Independent in the Bloomberg blotter) reiterates sovereign government funds diversifying away from the weakening dollar, which is causing inflation domestically.

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html

Expect denials from all sides, the it's becoming increasingly apparent the USDollar is doomed long-term.

And here is a dour prediction from a normally conservative Swiss banker. It's convincing, but let's hope he's dead wrong.

http://www.mmnews.de/index.php/200910043905/Gold-Silber/Gold-vs.-Paper-Money.html

The beginning of the end for the USDollar

It's already been occurring, as a few middle eastern Arab states have already unpegged from the USDollar for their oil exports. According to Bloomberg:

Oct. 6 (Bloomberg) -- Arab states have started talks with China, Russia, Japan and France to stop using the U.S. currency for oil trading, the Independent reported, citing Middle Eastern and Chinese banking officials it didn’t name.

The oil-producing nations are seeking to move to a basket of currencies, including the yen, the yuan, the euro and gold to settle transactions, the newspaper said.

I've predicted this, but didn't realize it would occur this soon. Kuwait, Syria, and the United Arab Emirates had already unpegged to the dollar last summer, in order to combat domestic inflation caused by the weak USDollar.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahGpyu4D9xBk

The rest of the world is now unpegging, as they diversify away from the USDollar. The financial implications of this are enormous, and could cause a run on the dollar. This will roil any economic recovery, as US borrowing costs will soar, and yields on US Treasury bonds will have to rise to attract diminishing demand.

Gold soared on the news.

Co-founder of Home Depot, Ken Langone

In this Bloomberg interview, he calls it as he sees it:

http://www.bloomberg.com/avp/avp.htm?N=av&T=Kenneth%20Langone%20Says%20U.S.%20in%20%60Horrible%20Economic%20Storm%27&clipSRC=mms://media2.bloomberg.com/cache/vY36ExWO8TB0.asf

We could use a little honesty from the government.

Video on the financial crisis...

and why we're not out of the woods yet.

http://www.zerohedge.com/article/janet-tavakoli-why-meltdown-risk-now-greater-it-was-2007

Greenspan speaks on gold

Now that he is former Federal Reserve Chairman, Alan Greenspan is speaking more freely (and truthfully) on the topic of gold. In a segment on the zerohedge.com website:

Alan Greenspan has just lent some support to the theory. Specifically:

Gold prices that jumped above $1,000 an ounce this week are signaling that investors are buying metals to hedge against declines in currencies, former Federal Reserve Chairman Alan Greenspan said.
The gains are “strictly a monetary phenomenon,” Greenspan said today at an investment conference in New York. Rising prices of precious metals and other commodities are “an indication of a very early stage of an endeavor to move away from paper currencies,” he said...

“What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment,” Greenspan said.
In other words, Greenspan is saying that investors are moving out of the second-to-lowest step on the pyramid (currencies and government bonds) and into the lowest step (gold).

Greenspan is also verifying what goldbugs like Exeter, Fekete and Schoon have been claiming: that "the barbarous relic" still holds an important place in the modern investor's psyche.

Gold suppression confirmed

Enclosed is a declassified letter on gold price suppression schemes:

http://www.scribd.com/doc/20254882/CIA-1968-Financial-Crisis

This is a letter from the State Department:

http://www.zerohedge.com/article/declassified-state-dept-data-highlights-global-high-level-arrangement-remain-masters-gold

And here's a commentary by zerohedge.com on a letter written by former Fed Chairman Arthur Burns to President Gerald Ford on gold policies:

http://www.zerohedge.com/article/smoking-gun-fed-controlling-gold

These letters are part of the mounting prima facie evidence that the US government and central bankers worldwide are suppressing the price of gold, in an attempt to control inflation and maintain confidence in the financial system. This not only damages investors in precious metals, but it also harms gold producers as low gold prices make mining operations unprofitable and discourage exploration. The other unintended consequences include a lower standard of living and political instability in other countries.

The conspiracy theorist gold bugs aren't so nutty after all.

Timothy Geithner, real estate investor

This video about Tim Geithner's home for sale is hilarious--typical Jon Stewart humor--snarky, smart, and true.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Home Crisis Investigation
www.thedailyshow.com
Daily Show Full Episodes Political Humor Ron Paul Interview

Deflation or Inflation?

That is the big question, because the answer to that question is a key driver for investment decisions.

My answer? It depends. That sounds like a cop out, so I will need to clarify.

Top-down, the answer is that essential goods and services will experience a surge in prices as a by-product of a weakening dollar. We will pay more to heat our homes, fill up our gas tanks, and put food on the table. Why is that, when we have slackening industrial demand? Because we are now competing with a growing middle-class population in Asia--billions of them, in fact. As their standards of living continue to rise, they will eat more meat, putting pressure on grains. They will drive more, and buy more homes as they urbanize. Hence, we should continue to see an uptrend in prices of basic commodities--even as the economy sputters in and out of recovery.

The Consumer Price Index (CPI) may continue to flash deflation, as the US consumer de-levers and cuts back on consumption. A moribund economy will keep a lid on labor rates, which will help control inflation on some services. Not only are home prices declining, but so are rentals. The cost of high-end consumer discretionary goods will also be dampened due to cuts from even the wealthy. The government will declare that deflation is the boogey-man--not inflation, self-rationalizing that continued deficit spending and quantitative easing will be necessary to keep "stimulating" the economy.

Yet, US consumers will feel the brunt of this bifurcation, as our wages decline while the cost of essentials rise. This is a consequence of our economy being driven by the US consumer, who is tapped out. Seventy percentage of the US economy is consumer-oriented. By contrast, only 40% of China's economy is consumer-driven. As their economy matures and continues to fluorish, consumption will surely rise, even as manufacturing exports to the US and Europe decline. A rising Chinese (and Indian) consumer will strain tight supplies. Coupled with a weakening dollar, the US consumer will have to grapple with diminished purchasing power, even though prices for some items will be deflated.

Enclosed is an article on what to expect going forward:

http://www.businessinsider.com/rosenberg-buy-commodities-as-the-trade-war-escalates-2009-9