Silver as an asset class

There are approximately165,600 tons (5.324 billion ounces) of gold above ground.  Priced at $1400 per ounce, the existing gold above ground is worth $7.5 trillion.

The market capitalization of Microsoft is $225 billion.

The market capitalization of Apple is $325 billion.

The market capitalization of ExxonMobil is $425 billion.

Equities worldwide are roughly $50 trillion.
 
US debt and unfunded liabilities total over $100 trillion, despite much lower figures reported by the mainstream media.

The global derivatives market is well over $1 quadrillion.

There are roughly 900 millions ounces of silver above ground as of late 2010, of which 490 million ounces are in ETF vaults.  At today's price of $34 per ounce, all the existing silver in the world is worth $30.6 billion.

It won't take much to move the needle on silver.

CNBC On The Case For $130 Silver

JPMorgan Fighting 10,000 Lawsuits

http://www.thestreet.com/story/11026295/1/jpmorgan-fighting-10000-lawsuits.html

Race To Undo The Cure

This is an expose on miscreants within the media, the FDA, the medical community, and hedge funds.

http://caretolive.com/2011-02-21/race-to-undo-the-cure/

Marc Faber: "I Think We Are All Doomed"

http://www.zerohedge.com/article/marc-faber-i-think-we-are-all-doomed?

"I think we are all doomed. I think what will happen is that we are in the midst of a kind of a crack-up boom that is not sustainable, that eventually the economy will deteriorate, that there will be more money-printing, and then you have inflation, and a poor economy, an extreme form of stagflation, and, eventually, in that situation, countries go to war, and, as a whole, derivatives, the market, and everything will collapse, and like a computer when it crashes, you will have to reboot it."

Lewis Lehrman on a Modernized Gold Standard

Thanks to Kitty for finding this video.

http://video.foxbusiness.com/v/4553940

Speak Up and Be Heard

http://news.silverseek.com/SilverSeek/1298557244.php

Will AIG Implosion 2.0 Lead To QE 3.0?

Here we go again with AIG.

http://www.zerohedge.com/article/will-aig-implosion-20-lead-qe-30-0

"American International Group Inc., the bailed-out insurer, said it faces increased risk of losses on its $46.6 billion municipal bond portfolio and that defaults could pressure the company’s liquidity."

The value of our investment portfolio is exposed to the creditworthiness of state and municipal governments. We hold a large portfolio of state and municipal bonds ($46.6 billion at December 31, 2010), primarily in Chartis, and, because of the budget deficits that most states and many municipalities are continuing to incur in the current economic environment, the risks associated with this portfolio have increased. Negative publicity surrounding certain states and municipal issues has negatively affected the value of our portfolio and reduced the liquidity in the state and municipal bond market. Defaults, or the prospect of imminent defaults, by the issuers of state and municipal bonds could cause our portfolio to decline in value and significantly reduce the portfolio’s liquidity, which could also adversely affect AIG Parent’s liquidity if AIG Parent then needed, or was required by its capital maintenance agreements, to provide additional capital support to the insurance subsidiaries holding the affected state and municipal bonds. As with our fixed income security portfolio generally, rising interest rates would also negatively affect the value of our portfolio of state and municipal bonds and could make those instruments more difficult to sell. A decline in the liquidity or market value of these instruments, which are carried at fair value for statutory purposes, could also result in a decline in the Chartis entities’ capital ratios and, in turn, require AIG Parent to provide additional capital to those entities.

Eric Sprott: "There Is No More Silver Left"

http://www.zerohedge.com/article/eric-sprott-there-no-more-silver-left


http://www.youtube.com/watch?v=T2w7wGwUZ9Y&feature=player_embedded

Israeli tanks strike Gaza after mortar attack

http://www.huffingtonpost.com/huff-wires/20110223/ml-israel-palestinians/

Crude oil is about to jump another $10 a barrel.

Geithner Says Not To Worry About Surging Oil Prices: "Central Banks Have A Lot Of Experience In Managing These Things"

No problem!  Famous last words.

http://www.zerohedge.com/article/geithner-says-not-worry-about-surging-oil-prices-central-banks-have-lot-experience-managing-

And Wow: Fed's Hoenig Says United States Has "Deeply Undermined Free-Market Capitalism"

Too bad Hoenig is stepping down as Kansas City Fed governor soon.


http://www.zerohedge.com/article/and-wow-feds-hoenig-says-united-states-has-deeply-undermined-free-market-capitalism

The Fed mutiny has arrived:

• HOENIG SAYS U.S. HAS `DEEPLY' UNDERMINED FREE-MARKET CAPITALISM
• HOENIG WARNS OF ESCALATING SERIES OF CRISES WITH RISING COSTS
• HOENIG: LARGE FINANCIAL FIRMS CAN EXPECT BAILOUTS IN FUTURE
• HOENIG SAYS BIG FINANCIAL FIRMS MUST NOT HOLD ECONOMY `HOSTAGE'
• HOENIG: LARGE FIRMS WERE `GAMING' CAPITAL STANDARDS PRE-CRISIS
• HOENIG:BIG FIRMS `HAVE SIGNIFICANT INCENTIVES' TO INCREASE RISK
• HOENIG: TOO-BIG-TO-FAIL FIRMS POSE `GREATEST RISK' TO ECONOMY
• HOENIG SAYS BIG FINANCIAL FIRMS ENJOY `HUGE' FUNDING ADVANTAGE

And the last one:

• FED'S HOENIG SAYS `HISTORY IS ON MY SIDE'

Step. away. from. the. bathtub. Tom.
In other news, someone at the top finally tells the truth about this shitshow of a banana republic.

Speaking of the Denver Mint...

I encourage everyone to visit a US Mint.  The San Francisco mint is closed to the public, but the Denver mint offers guided tours to the public.  Reserving a space is recommended to ensure a slot.

As readers of this and other blogs now understand, central bankers, government monetary officials, academia, the financial industry, and the media are notorious anti-gold advocates.  High commodities prices, especially precious metals, thwart the advocacy of the USDollar as the global reserve currency.  Our whole financial system is USDollar-based, and has been since 1945 from Bretton-Woods.

But other sovereign nations are getting increasingly concerned by the profligate printing of the USDollar, so they are diversifying away from USDollar-denominated assets, selling US Treasuries, and buying gold, for instance.  They deservedly are concerned about a bloated, insolvent country issuing more debt.

But the US government and its cohorts must obfuscate these monetary shenanigans, and they also realize that rising prices in the precious metals sector are the canaries in the coal mine of financial distress.  That's why it's in government's best interests to talk gold and silver down, with complicity from economists, pundits and the media.

Which dovetails back to why I recommend readers visit a US Mint if they can.  Upon first entering the welcoming room in the Denver mint to start the tour are two display cases to your left.  The first one chronicles the history of gold.  The next one chronicles silver.

Anybody see the irony in this?  Presidential administrations, central bankers, US Treasury officials, Ivy League economists, Wall Street financial titans, and the financial press have all minimized, dismissed, trivialized, and even mocked precious metals as an investment class, in their vested interest to maintain the status quo of the USDollar as a reserve currency.  They simultaneously proclaim gold is a "barbaric relic."  Gold bugs are lunatics, etc., as the groupthink goes.

Yet, as clear as day, the first thing that grabs you when you start the tour at the Denver mint, are the display cases on the history of gold and silver.  "Do as I do, not as I say..."

The  Establishment's mandate is protect the veneer of the USDollar as a credible medium of exchange and store of value.  While it is true that USDollars are a medium of exchange, since the US Federal Reserve Bank was created in 1913, the USDollar has been a terrible store of value.  It has lost 90 - 99% of its purchasing power since then, depending on which inflation calculations one uses (the official government CPI statistics are notoriously understated).  And that dollar debasing accelerated after 1971 when President Nixon took us off the gold standard, opening the door for central bankers worldwide to recklessly print currency.  Thanks to the ravages of inflation, does anybody still think the cost of healthcare and college tuition has declined over the years?

Former Fed Chairman Greenspan took us to unprecedented heights in debt, and current Fed Chairman Bernanke has subsequently expanded our nation's balance sheet exponentially.  They are trying to solve a huge debt problem by issuing astronomically more debt.  It's insane.  Former US Treasury Secretary Robert Rubin under President Clinton declared the US would pursue a strong dollar policy.  Please...

That's why the financial industry is expert at creating and hoarding Federal Reserve Notes (e.g. USDollars), and why CPA's are expert at keeping as much of them as they can.  But Federal Reserve Notes are just that:  notes, which is essentially debt.  After all, "this note is legal tender for all debts, public and private" and backed only by the "full faith and credit of the U.S. government"—the government's ability to levy taxes to pay its debts.

It has no intrinsic value, and is only worth as much as the confidence in the solvency of the issuing sovereign nation.  Due to America's overconsumption and the overexpansion of our debt levels, the world is losing confidence in the USDollar.

Yet, the government doesn't want too many Americans to own gold or silver.  Why?  Because that means you are outside the all-encompassing financial system.  You are no longer depending on them financially--no longer a counterparty.

I will leave the reader to connect the dots.  If this sounds esoteric, and in case I'm being too vague, I will provide one quote:

"Gold is money and nothing else." - JPMorgan, 1912

Note the name--and the date.  Neither are coincidental.

Contango in gold vs. backwardation in silver

I've written several blogs on why backwardation indicates physical spot shortage and is bullish for a commodity, so readers can do a search for "backwardation" to find the previous blogs.  Also, previous blogs may have described the contango in oil markets, and how speculators were taking delivery of barrels of crude oil, and storing them in supertankers in order to take advantage of higher prices on later delivery months.  That strategy only made sense if the contango was wide enough to justify the inventory costs (as well as opportunity cost).

But since a picture is worth a thousand words, here are a couple charts on the contango in gold and backwardation in silver.  A contango is normal because it's plausible that futures prices are higher than the spot price, as markets discount in the cost of owning inventory, namely storage, insurance, and security.

By contrast, backwardation indicates an immediate physical shortage, as sellers scramble to find inventory to deliver to buyers, and are forced to bid up prices once they do find supply.  My ad hoc surveys and visits to coin dealers and the US Mint in Denver confirms the tightness in the physical silver market.

Click on images to enlarge.  Credit goes to sharelynx.com for the charts.

Counterfeit coins from China turning up in Wash. state

I witnessed some fake gold Chinese panda coins last year.  Even the numismatist who owned them was fooled.  As always, caveat emptor.

http://www.komonews.com/news/local/115789384.html

Rich farmers now buy silver bars, not jewellery

http://economictimes.indiatimes.com/articleshow/7552751.cms?frm=mailtofriend

Nomura Predicts $220 Oil If Just Libya, Algeria Cut Output

http://www.zerohedge.com/article/nomura-predicts-220-oil-if-just-libya-algeria-cut-output

Home prices may fall by up to 25 percent: economist

http://www.reuters.com/article/2011/02/22/us-usa-economy-housing-shiller-idUSTRE71L4FC20110222

"My intuition rates the probability of another 15, 20, even 25 percent real home price decline as substantial. That's not a forecast but it's a substantial risk I think," Shiller told reporters on a conference call.

U.S. single-family home prices fell for the sixth month in a row in December, bringing them closer to the low seen in 2009, according to the S&P/Case Shiller composite index of 20 metropolitan areas.

Embry - Short Squeeze in Silver, Manipulators Getting Overrun

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/2/22_Embry_-_Short_Squeeze_in_Silver%2C_Manipulators_Getting_Overrun.html

“There is a tremendous bid in the gold and silver markets at a time when the market is tight in these metals and there is a concentrated short position in both gold and silver.  The Middle-East crisis has come out of left field and this is creating additional bidding in the precious metals markets.  To be bearish gold and silver is to be bullish paper currencies and in view of QE and sovereign risks, that is a terrible bet.”

When asked about silver Embry remarked, “Eric Sprott and I have always contended that in silver if you get some serious physical buying in the absence of above ground inventories that are available for sale, that the paper manipulators would basically get overrun.  Right now we are in the process seeing that unfolding.

I definitely think a short squeeze is underway in silver.  The evidence will be if the price of silver moves sharply higher from here.  I think you will know if you have a real short squeeze if this thing starts piling on gains in the next week.

The price of silver has been held back for so long and this is not something that can be cured with existing mine production because mine production has been sticky.  People are coming after silver as a monetary asset because it’s so much cheaper than gold and this is creating an explosive situation.”

No links, just straight talk

Three years ago, when I started this blog, my macro thoughts and ideas on the economy and global finance were largely ignored and considered extreme (to the shiftless, my thoughts are still considered extreme).  Hence, my blog posts were long and esoteric to most.  As events have unfolded, and as my accompanying thoughts are no longer considered on the fringe, I have been able to cover more ground by merely providing links to articles--sometimes even from mainstream media outlets.

Having said that, most are still confused, so I will try to distill the main points to the best of my ability.

1) individuals, families, small businesses, local governments, states, the Federal government, and most developed countries still have huge debt problems which have not been addressed structurally, despite post-2008 "financial regulatory reforms".
2) emerging countries still enjoy rapid GDP growth, but clouds are lining up on the horizon for them too, as our interconnected global economy is USDollar-based, and the reserve currency is being debauched by a reckless Fed and corrupt politicians.
3) the deflation/inflation debate is over.  Inflation has won--and will win, perhaps morphing into something far worse than a deflationary contraction.  Hyperinflation can collapse sovereign nations overnight.
4) falling US home prices and stagnant wages do not indicate deflation.  Home prices are falling because real estate is largely purchased using credit.  The credit bubble has collapsed--therefore, assets normally purchased on credit (e.g. mortgages) will experience price declines due to lack of available credit.
5) on the other hand, consumable items are soaring in price due to the inflationary monetary policies of the Fed and US Treasury--they are printing currency out of thin air.
6) food and energy inflation is why the citizens are rioting in underdeveloped countries in the Middle East and Africa.  Sure, they are also protesting oppressive governments, but that alone is not why people take it to the streets.  They risk life and limb being in the line of fire because they cannot feed their families.
7) food accounts for approximately 10% of US household budgets.  In poor countries, 75% of their household budget may be allocated toward food.  When Americans see our food and energy bills rise 20%, we will complain to our neighbors.  When Egyptians see their food costs rise 20%, they are wiped out and starving.
8) the "it can't happen here syndrome" is a fallacy.  It has already happened here in the 1970's during the Iranian oil embargoes, when we had gas lines, and even/odd days rationing.  With rising energy prices, all sectors of our economy are adversely impacted, because our efficient supply-chain infrastructure relies on cheap oil.
9) lacking cheap energy sources, mild inflation can turn into high inflation overnight, irrespective of the Fed unwinding its easy monetary policies.  Unlike the early 80's, when former Fed Chairman Volcker derailed inflation by raising short-term interest rates to 21%, current Fed Chairman Bernanke will be unable to raise interest rates BECAUSE HE WOULD BANKRUPT THE UNITED STATES OVERNIGHT BY DOING SO.  Deficits and debt do matter, Mr. Chairman.
10) having said that, expect a stagnant economy (despite media cheerleading a recovery), high structural unemployment, rising inflation, more quantitative easing in attempts to stimulate the economy, and the continued deterioration of the USDollar.
11) speaking of inflation and unemployment, both measures are understated by official US government statistics, in order to soothe the naive and trusting masses.
12) the stagflation will be a precursor to the final collapse of the USDollar--probably when it is officially removed as the global reserve currency.  Hyperinflation will result, as will a drastic reduction in US consumer purchasing power--and a precipitous drop in our standard of living.

I will leave the reader to formulate their own investment thesis based on the aforementioned scenarios, but understand that central bankers and governments will do all they can to surreptitiously manipulate markets and obfuscate the fact that they are destroying their currencies, destabilizing sovereign economies, and impoverishing billions of the citizen-class.  They will feel the pressure to print more money to fill the gaping holes of insolvency, and they will justify it as stimulative and necessary bailouts.  They are correct short-term, but longer-term, they are ensuring the financial collapse of the world as we know it.

Fecks, Lies and Video Tape [or the Cabal Channel]

http://www.zerohedge.com/article/guest-post-fecks-lies-and-video-tape-or-cabal-channel

Mohamed El-Erian Says We Can Not Assume The Dollar Will Retain Its Reserve Currency Status

Even the co-head of PIMCO, the world's largest bond fund, is issuing a warning for the USDollar losing its global reserve currency status.  'Bout time...

http://www.zerohedge.com/article/mohamed-el-erian-says-we-can-not-assume-dollar-will-retain-its-reserve-currency-status

"It is a warning shot to America that we cannot simply assume flight to quality, flight to safety. That people are starting to worry about the fiscal situation in the U.S., worrying about the level of debt and what they're hearing about states and municipalities. I would take this as a warning shot that we cannot assume that we will maintain the standing of the reserve currency as we have in the past." - Mohamed El-Erian, PIMCO CIO

Federal, state and local debt hits post-WWII levels

http://www.washingtonpost.com/wp-dyn/content/article/2011/02/20/AR2011022003201.html

America is broke

http://usawatchdog.com/national-debt-america-is-broke/

Former LA Mayor: 90% of cities and states to go bankrupt

http://www.economiccollapse.net/richard-riordan-90-percent-of-cities-and-states-to-go-bankrupt