"The number one performing stock market in the last ten years has been Zimbabwe - in nominal terms" - that is the most memorable soundbite of Kyle Bass' presentation to David Faber at the Bearfoot Summit, because unfortunately, in real terms investors have lost all their money.
In fact, Bass says to shun stocks by and large, as in real terms (note not nominal), stocks will underperform a hyperinflationary system. This confirms what we have been observing for the past months ever since the latest FOMC regime, when gold has benefited far more from "money deluge" expectations that risk assets. In other words, those who are betting on a rising tide emanating from the inkjets' liquidity spigot, will do far better to buy gold than stocks.
From Morgan Stanley's Peter Richardson, who has just become one of the bigger gold/silver/platinum/palladium/platinum/rhodium bulls.
* Identified and implied investment demand has increasingly become the main driver of demand in the gold market. Since 2002, investment demand as a percentage of total demand has increased from 14% to 41.4% in 2009. We expect these percentages to rise further, to 46.9% in 2010 and 48.9% in 2011. In Q2 2010 alone, investors bought 274t of gold via exchange traded funds (ETFs).
* This development is predominantly a measure of fear regarding the purchasing power of the world’s major fiat currencies, especially the US dollar and the Japanese yen. In our view, investors have become increasingly concerned about the risk of a protracted period of deflation and low growth in the developed world. This has raised demand for investments that retain real purchasing power in a period of falling prices and weak demand.
* However, judging by the flood of money into inflation-adjusted government bonds as well as gold, investors are also worried about future inflation. This paradoxical fear of current deflation and future inflation has its roots in the anticipated policy response to the current US, Japanese and European growth environment. Most notably, gold investors are concerned about renewed quantitative easing (QE) and an anticipated expansion in liquidity and currency devaluation that is also viewed as potentially inflationary, fuelling the demand for real assets that preserve purchasing power.
* Gold has been a particular beneficiary of this safe-haven demand since the US FOMC alluded to the possibility of renewed QE in the minutes of its September 2010 meeting. However, this allusion also coincided with resurgent fears over the European sovereign debt crisis following news of higher bank bailout costs in Ireland, rating downgrades in Spain, and concerns regarding capital adequacy of European banks following the publication of Basel III guidelines.
* In addition, despite these resurgent fears over European sovereign debt and the health of some European banks, European central bank net sales of gold actually fell in the first year of the third Central Bank Agreement on Gold, to only 6.2t. Given purchases by non-European central banks, the official sector is likely to be a net buyer of gold in 2010, and net selling will probably be smaller than previously anticipated.
* As a result, we have raised our 2011 gold price forecast in our base case by 14.3%, to an average US$1,315/oz, and in our bull case, which anticipates a more aggressive level of dollar weakness and a protracted period of negative real interest rates, we have raised our price forecast to US$1,512/oz from US$1,380/oz.
“That collateralized debt obligation is now effectively worthless because the collateral behind the debt can no longer be collected. The banks cannot go and get it.
Let’s say you have 10 mortgages at $1 million a piece, the sum total of those mortgages are $10 million. So, the banks took the 10 mortgages and bundled them together into a collateralized debt obligation or CDO with a face value of $10 million.
They then sold that new entity that they created to an investment group of some sort, a pension fund, hedge fund, etc. promising them a yield of let’s say 7%. The sales pitch would emphasize the fact that this CDO was backed by real collateral. In the event of loan defaults by the borrowers, the banks would tell the buyer of the CDO that the collateral behind the loan could be sold to recapture any potential losses on the part of the purchaser.
Everything seemed to work fine until the defaults began and the foreclosure process kicked into high gear. The foreclosure process has exposed fatal flaws in the system and the flaw is that the banks cannot prove clear ownership of the mortgage.
Consequently, they are then barred from foreclosing on the property. Because they can no longer foreclose on the properties, the CDO is now effectively worthless.
The hedge funds and the pension funds cannot now sell these CDO’s on the open market, so how are they going to recover their original investment? Perhaps you may say that won’t be a problem because these instruments were insured. The problem is now the credit default swap or the insurance policy that was purchased to protect against default assumes that the insurer has the financial wherewithal or resources to make good on the claim.
If there were only a small number of these problem CDO’s this would not be an issue. But as the number of the foreclosures continue to skyrocket, and more and more banks are prohibited from seizing the collateral behind the property, the sheer magnitude of the number of claims presented to the insurer will overwhelm their balance sheet.
In effect what you have is an insurance company which doesn’t have enough money to pay off the claims. Compounding the problem is the fact that the CDO’s and credit default swaps related to these claims form a mass network of interdependence. This then ripples through the entire system and creates a domino effect which can cause the failure of entities creating the next financial crisis.
Ultimately the Federal Reserve will be asked to step in and buy up the now worthless CDO’s and put those on its balance sheet. In order to do this the Federal Reserve will have to engage in massive quantitative easing, taking onto its balance sheet the worthless CDO’s in exchange for newly issued treasuries.
Citigroup Inc. and Ally Financial Inc. units were sued by homeowners in Kentucky for allegedly conspiring with Mortgage Electronic Registration Systems Inc. to falsely foreclose on loans.
The lawsuit, filed as a civil-racketeering class action on behalf of all Kentucky homeowners facing foreclosure, also names as a defendant Reston, Virginia-based MERS, the company that handles mortgage transfers among member banks. The suit claims that through MERS the banks are foreclosing on homes even when they don’t hold titles to the properties.
The homeowners claim the defendants filed or caused to be filed mortgages with forged signatures, filed foreclosure actions months before they acquired any legal interest in the properties and falsely claimed to own notes executed with mortgages.
The Kentucky suit claims MERS and the banks violated the Racketeer Influenced and Corrupt Organizations Act, a law originally passed to pursue organized crime.
“RICO comes in because the fraud didn’t just happen piecemeal,” Heather Boone McKeever, a Lexington, Kentucky-based lawyer for the homeowners, said in a phone interview today. “This is organized crime by people in suits, but it is still organized crime. They created a very thorough plan.”
The suit, which includes claims of fraud, also names as defendants other banks, real-estate law firms and document- processing companies.
Some rather scary predictions out of Paul Farrell today: "It’s inevitable: Wall Street banks control the Federal Reserve system, it’s their personal piggy bank. They’ve already done so much damage, yet have more control than ever.Warning: That’s a set-up. They will eventually destroy capitalism, democracy, and the dollar’s global reserve-currency status. They will self-destruct before 2035 … maybe as early as 2012 … most likely by 2020.
Our timeline is crucial to understanding the historic implications of Taleb’s prediction that the Fed is dying, that it’s only a matter of time before a revolution triggers class warfare forcing America to dump capitalism, eliminate our corrupt system of lobbying, come up with a new workable form of government, and create a new economy without a banking system ruled by Wall Street."
Stage 1: The Democrats just put the nail in their coffin confirming they’re wimps when they refused to force the GOP to filibuster Bush tax cuts for billionaires.
Stage 2: In the elections the GOP takes over the House, expanding its strategic war to destroy Obama with its policy of “complete gridlock” and “shutting down government.”
Stage 3: Post-election Obama goes lame-duck, buried in subpoenas and vetoes.
Stage 4: In 2012, the GOP wins back the White House and Senate. Health care returns to insurers. Free-market financial deregulation returns. Lobbyists intensify their anarchy.
Stage 5: Before the end of the second term of the new GOP president, Washington is totally corrupted by unlimited, anonymous donations from billionaires and lobbyists. Wall Street’s Happy Conspiracy triggers the third catastrophic meltdown of the 21st century that Robert Shiller of “Irrational Exuberance” fame predicts, resulting in defaults of dollar-denominated debt and the dollar’s demise as the world’s reserve currency.
Stage 6: The Second American Revolution explodes into a brutal full-scale class war with the middle class leading a widespread rebellion against the out-of-touch, out-of-control Happy Conspiracy sabotaging America from within.
Stage 7: The domestic class warfare is exaggerated as the Pentagon’s global warnings play out: That by 2020 “an ancient pattern of desperate, all-out wars over food, water, and energy supplies would emerge” worldwide and “warfare is defining human life.”
In this rapidly unfolding scenario, the Fed cannot survive. Why? Not because the Fed is at the center of America’s economic problems, beyond repair, a dying institution. But because the Fed is a pawn of Wall Street’s Happy Conspiracy, which is incapable of seeing the train wreck that it set up.
This out-of-control, conspiracy of greedy Wall Street bankers, corporate CEOs, corrupt politicians and Forbes 400 billionaires will, in the near future, trigger the third catastrophic meltdown of the 21st century, a collapse that paradoxically can transform America into a new, stronger post-capitalist economy … but only after a revolution and brutal class warfare. But few will talk about what’s coming.
Here’s Taleb’s “simple metric for judging whose economic opinions are worth his time: ‘Did someone predict the crisis before it happened” in the past? “If the answer is no, I don’t want to hear what the person says. If the person saw the crisis coming then I want to hear what they have to say” about future crises.
Taleb target No. 1: Treasury Secretary Tim Geithner, who spoke just before Taleb at the forum. Of course, experience tells us you really can’t trust anyone in government. All politicians fudge the numbers, cherry-pick data to suit their personal goals, biases and political rhetoric.
Remember Hank Paulson, Wall Street’s Trojan Horse inside Washington? Earlier he had made over half a billion as Goldman’s CEO. Back in July 2007 before the meltdown he bragged to Fortune that this is “the strongest global economy I’ve seen in my business lifetime.” Never trust anything “leaders” like him say. Never. Worse, he and our clueless Fed Chairman Ben Bernanke later lied to the public that the subprime crisis was “contained.” No, my friends, you cannot trust politicians and government insiders. Never.
Unfortunately, America is losing its capacity to reason, its common sense, its values, its vision of the future.
The academic research that outlines the inter-relatedness of gold and interest rates is succinctly laid out in a 2001 treatise, Gibson's Paradox Revisited, by Reg Howe. From this one can deduct that ANY rigging of the gold price must go hand-in-hand with simultaneous rigging of interest rates.
Folks would do well to realize how neatly emerging details of Fed surrogate Morgan’s ‘stealth’ activity in the bullion market dovetails with their obscene, obsequious activity elsewhere in their derivatives book – particularly their JUMBO TRILLIONS sized interest rate swap positions.
Stealth activity on the part of the Fed – utilizing proxy institutions to generate limitless artificial demand for any and all U.S. Government Debt – effectively gives the Fed control of the long end of the interest rate curve [the bond market].
From a timing perspective, it is also noteworthy that gold price rigging – long maintained by GATA – is alleged to have begun in earnest during the Clinton Administration with the appointment of Robert Rubin as U.S. Treasury Secretary [along with understudy Lawrence Summers] in Jan. 1995. Coincidentally [or perhaps not?] we can trace the genesis of the “explosion” in the use of derivatives [mostly interest rate] to that exact same time frame. In fact, if we follow the time line in ‘reverse’ – the growth in the use of derivatives appears like a trail of bread crumbs – right back to the time when Professor Lawrence Summers, under the tutelage of Sir Robert of Rubin, brought his academic alchemy to Washington:
Does anyone with a pulse really believe that ANY Bank Holding Company in the U.S. would be permitted to have a derivatives position in excess of 75 TRILLION [five times the size of U.S. GDP] if they were not ‘in bed’ with the FED????
If you except the premise that, “J.P. Morgan “is” the Fed”, then, “IT’S REALLY THE FED WHO IS BUYING GOLD” and they [unfortunately, this means “America”] likely have NONE LEFT to sell.
NOTHING could be more bullish for the price of gold going forward.
Everyone needs to get it through their heads; these criminals are NOT IN IT for profits. The survival of our “BROKEN FIAT MONEY SYSTEM” “IS” their only goal.
Conclusions:
Officialdom will never admit it and it will NEVER be reported in the mainstream financial news but our financial system has NEVER been in a more precarious state. A banking crisis of unparalleled proportions is coming – probably soon – the exact timing is still sketchy.
Got physical precious metal yet?
After physical paperwork was filled out and signed by the borrower, the banks electronically filed the paperwork into a computerized system called the “Mortgage Electronic Registry System” (MERS). According to Congressman Grayson, 60%, or 60 million, mortgages are in MERS. The banks lost track of the original paperwork, the note, signed by the borrower. That is what actually proves the bank owns the property. Grayson says, “It appears that on a widespread and probably pervasive basis they (the banks) did not take the steps necessary to own the note . . . which means that in 45 out of the 50 states they lack the legal right to foreclose. . . . So they have simply created a system where servicers hire foreclosure mill law firms whose business is to forge documents showing or purporting to show they have a legal right to foreclose.”
Please take a moment and grasp the enormity of this problem for the banks. There are 60 million homes which banks loaned money on, and now they might not be able to legally get the property back if the homeowner defaults! Another colossal problem for the banks is the trillions of dollars in mortgages bundled into securities. Remember, the banks were giving anyone who could fog a mirror a mortgage which allowed them to create and sell lucrative mortgage backed securities. So, there are trillions of dollars in mortgage backed securities that now could have NO backing! Would you like to be the pension fund manager who bought that security? Do you think this just might cause an accounting problem for the banks? Do you think this could push some of the big banks into bankruptcy? Will there be another financial meltdown and government rescue?
Mr Lenihan had been speaking for less than two minutes on Friday before a mistake by Citigroup meant that the bank's clients were all able to be heard on the line.
Between 200 and 500 investors are understood to have been on the call, and as they realised their lines were not muted many began to heckle Mr Lenihan.
Some traders began making what one banker on the call described as "chimp sounds", while another cried out "dive, dive". A third man said "short Ireland" before adding "why not short Citi too?"
The bungled call comes at a tense time for relations between the Irish government and investors, some of whom have been dismayed at what they see as the country's attempts to dodge its commitment to guarantee the debt of the country's banking system.
On Friday it emerged that a small group of hedge fund debt investors were threatening to take Ireland to court if it pushed ahead with moves to impose so-called "haircuts" – or writedowns – on the value of their holdings in Anglo debt.
The group, which is thought to number no more than six funds, say they could force a default of Anglo, which would have catastrophic consequences for Ireland's already hugely stretched public finances.
In 1971 (Vietnam and deficits) when foreign nations (particularly France), demanded that the US settle its deficits with gold (as specified in the Bretton Woods Agreements), Richard Nixon and staff were worried about our disappearing gold reserves. Their answer to settling our debts in gold was a resounding and historic "no." In doing so, they shut the gold window. Thus, the time-honored link between the US dollar and gold was broken. The US would no longer give up its gold to settle its international debts. At that point, the US and the world went completely off the gold standard. The US dollar would then be the world's reserve currency.
Without the discipline of gold, the Bretton Woods agreement fell apart, and central banks were free to create fiat currency out of "thin air," as much of it as they wanted. The ignorant public accepted the intrinsically-worthless fiat money. "Now we're all Keynesians, " said a shaken Nixon.
The phony prosperity since 1971 was built on a Fed-created fantasy currency. Fantasies can only last so long -- until they meet head on with the brick wall of reality.
Thus, I believe that the very fundamentals of this bear market will be an epic clash between a world built on fiat money and a return to the reality of intrinsic wealth.
This bear market will be about the collapse of fiat money. In all history, no fiat currency has ever survived. The fundamental of this bear market will be about the collapse of the world's fiat currency and all the fake prosperity that has been created through fiat currency. In other words, cold reality will prevail. The people of the world will, at last, realize that money by fiat is not reality, it's fantasy money and a dream created by man.
In essence, what we're seeing now is a battle to the death between intrinsic money (gold) and the fiat paper created by the world's central banks.
The magnificent slow motion collapse of the fiat system which you are now witnessing will consume some individuals around you who are not prepared. This time it is global, and when the dust settles you must own real money - gold.
Wheat futures have surged 63 percent since the month of June. Wheat has recently been selling well above 7 dollars a bushel on the Chicago Board of Trade.
But wheat is far from alone. In his recent column entitled "An Inflationary Cocktail In The Making", Richard Benson listed many of the other commodities that have seen extraordinary price increases over the past year....
*Agricultural Raw Materials: 24%
*Industrial Inputs Index: 25%
*Metals Price Index: 26%
*Coffee: 45%
*Barley: 32%
*Oranges: 35%
*Beef: 23%
*Pork: 68%
*Salmon: 30%
*Sugar: 24%
*Wool: 20%
*Cotton: 40%
*Palm Oil: 26%
*Hides: 25%
*Rubber: 62%
*Iron Ore: 103%
Now, as those price increases enter the chain of production do you think that there is any chance that they will not cause inflation?
Do you think there is any chance at all that producers and retailers will not pass those costs on to consumers?
“If you ask me where the silver lining is for President Obama, I have to say I cannot see one,” says Bill Galston, a former Clinton official, who has been predicting for months the Democrats could lose the House. “Just as BP’s failure to cap the well has been so damaging, Obama’s failure to cap unemployment will be his undoing. There is nothing he can do to affect the jobless rate before November.”
“The bottom line here is that Americans don’t believe in President Obama’s leadership,” says Rob Shapiro, another former Clinton official and a supporter of Mr Obama. “He has to find some way between now and November of demonstrating that he is a leader who can command confidence and, short of a 9/11 event or an Oklahoma City bombing, I can’t think of how he could do that.”
"You never want a serious crisis to go to waste."
Tell this to a baby boomer or a middle aged person and they would be quite skeptical. Their neighborhood financial advisor or planner doesn’t advocate Gold. It is too dangerous. It could drop to $500. Gold stocks? Hell no! After failing to get you out of stocks not once but twice in the last ten years, your advisor tells you its time to play it safe. You need to save more.
As we should know by now, when it comes to the capital markets, conventional advice is eventually deadly. It identifies trends too late and fails to warn when risk increases and reward diminishes. However, most people would rather feel more comfortable than be a contrarian. Most people are too weak minded to find the answers, which usually oppose the herd.
Look at the capital markets today and the trends are clear. With global growth likely to remain low to stagnant for quite some time, stocks and commodities will not help your portfolio. Treasury bonds are performing well but the threat of severe inflation and sovereign bankruptcy looms. Precious metals are the only winner, yet the herd doesn’t see it that way. To them, the bull market in precious metals isn’t even a bull market. It is an aberration. It is a mistake.
The vast majority looks at the 1980s and 1990s as the norm. This is especially true of the financial industry. They don’t make any money from Gold and Silver so they don’t pay attention to it. It is only a nuisance.
It is interesting how much has changed. Fifty or sixty years ago you were supposed to have 10% invested in Gold and that was regardless of market conditions. Today, the mainstream advisors and analysts that like and recommend Gold, own less than 10%. They like it but they are afraid of it. It reminds me of a quote: The philosophies of one age have become the absurdities of the next.
Most people look at the last 30 years as the norm, when the norm was the 170 years before that. Monetary systems are restructured several times per century. It’s nothing new. A monetary system without an anchor will ultimately fail. The greatest generation and their forefathers knew this and owned Gold. It paid off in their time. Those with a long view of history know that the real risk is the current monetary system and not Gold/Silver. Every fiat currency in history has failed. Is it doom and gloom to expect the current monetary system to fail? No, its just prudence and foresight.
Now that we’ve established this let’s refute the bubble calls. Because of the recent collapse in so many markets and industries (technology, internet, homebuilding, mortgage finance, banking, oil) investing professionals and the public are now quite wary of any market that rises materially. Most will miss the coming explosion in precious metals because they are too scared of an eventual collapse. Yet, they don’t even realize that precious metals are not even close to bubble territory.
As of last year Gold and gold shares were 0.8% of global assets. If we are in a bubble then what was 1981? A volcano?
The reality is that too many investors will continue to make terrible decisions either on their own or through a mainstream advisor. They are convinced that precious metals are risky. You can’t even get them to put 5-10% of their assets in precious metals.
Going forward, it is a near certainty that precious metals will outperform. Why? This is what happens in a major credit contraction. There is a run for real money. It doesn’t matter if there is hyperinflation or deflation. Since the crisis began we’ve had strengthening deflationary forces. Gold has advanced to a new all-time high and even higher against most currencies. Quality gold stocks have surged to all-time highs. Silver has outperformed nearly everything except Gold.
Posts
All Comments
![[Most Recent Quotes from www.kitco.com]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_vBngWSge3bHywxIk-0Q8AEIoKPkvamRE_hzK2U3SyfahZp2ZJ6Nt45sNarvoQpzEtb_QZwh7zB6JOa0a2uT3RSNjya4PoKvxl_Kk_OYK3H9N4uuTYUfRGK4877FHoMry48_g=s0-d)
![[Most Recent Quotes from www.kitco.com]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_sVYF0YOuliww4ta6syhaGc9NGobWQ_BFdKR7Kn4JWmxEHJ3GSmJ09wrx8GDT9w7gC2dFTzVyGKR9iKBq7buKOKw-AC6A_6i37e9PwmMjgfJTWKEvQ4ohv6CPQcCKVnCOwn8_Kt=s0-d)
![[Most Recent USD from www.kitco.com]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_tT4KsTF0aUfUlzaVqSQ_XRxyC8GJKuQ-f-QDcZIpncIumFpcyfNp9DCw-ztcgDLCtIWhwIpliP_N2_1erHKdGkRJqpXuJShhQl6HdnqLsGTvyS86soED2o=s0-d)
