Fed Chairman Ben Bernanke lies

I've posted several video blogs of Ben Bernanke's lies.  Time to put it down in words.  Amerika:  wake the **** up.

• (November 15, 2005) "With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly."
• (July, 2005) "We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though."
• (October 31, 2007) "It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions."
• (November 21, 2002) "The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost."
• "The money supply is not changing in any significant way. What we’re doing is lowering interest rates by buying Treasury securities."
• "One myth that’s out there is that what we’re doing is printing money. We’re not printing money."
• (When asked directly during a congressional hearing if the Federal Reserve would monetize U.S. government debt) "The Federal Reserve will not monetize the debt." 

US DOLLAR very close to an accelerating decline

http://traderdannorcini.blogspot.com/2011/04/us-dollar-very-close-to-accelerating.html

There is only one way to describe what is occuring to the US Dollar; its future as the global reserve currency is in serious danger of disappearing forever. Under the "leadership" of the US Federal Reserve, and thanks also to the reckless and incredibly short-sighted spending occuring at the Federal level, the Dollar has run out of friends.

It's decline this morning has opened the door for gold to push past $1500 and silver into what looks to me like the beginning of a "MELT UP" mode. It has also send further speculative money flows into the commodity sector with the result that the CCI, the Continuous Commodity Index, is within a whisker of matching its all time high.

What many of us have feared could happen but were hoping to see avoided, is becoming increasingly likely the further the Dollar descends into this abyss.

Marc Faber: Future Value of US Dollar Will Be Zero

http://www.bullsource.com/marc-faber-future-value-of-us-dollar-will-be-zero/

Faber thinks we’re in a contest for the ugliest currency. He says a huge overhang of US dollars exists globally, and suggests gold and silver as the best currencies. Faber believes the US dollar could rebound in the short term, but maintains his long term prediction that the value of the US dollar will drop to zero.

Buffett vs. gold

Click on image to enlarge.

Chemist Explains Why Precious Metals Are Money

http://youtu.be/r-o79vfBDJ4

A Day Made of Glass... Made possible by Corning.

http://youtu.be/6Cf7IL_eZ38

S&P downgrades outlook on US debt to negative--in Chinese

http://www.youtube.com/watch?v=rc96k58rkX4&feature=player_embedded

States see biggest revenue drop in 60 years

http://www.politico.com/news/stories/0111/47165.html

In a sign of the sluggish economy’s devastating impact, state government revenue across the country dropped by nearly one third in 2009 - the sharpest decline in 60 years, the Census Bureau said in a new report.

States saw record-breaking losses to their pension funds and in their tax revenues, as the recession wreaked havoc on payrolls and investments.

Revenues plummeted by 30.8 percent, from $1.6 trillion in 2008 to $1.1 trillion in 2009, according to the report.

It was the most dramatic drop the Census Bureau has seen since it began collecting state revenue data in 1951.

And the worst may still be to come.

Fiscal 2012 “will actually be the most difficult budget year for states ever,” said Nicholas Johnson, director of the state fiscal project at the Center on Budget and Policy Priorities, in an interview with The Washington Post.

The center reported last month that states will see budget shortfalls totaling more than $140 billion next year as they continue to wrestle with depressed revenue levels while federal stimulus dollars and reserves run out.

Bernanke May Sustain Stimulus to Avoid ‘Cold Turkey’ End to Aid

The $64 trillion question of whether to extend QE is starting to heat up--again. 

http://www.bloomberg.com/news/2011-04-19/bernanke-may-reinvest-maturing-debt-to-avoid-cold-turkey-end-to-stimulus.html

Gold and silver are under-owned by retirement funds

As of December 31, 2010, retirement asset values had climbed to $17.5 trillion.  <Click here>

As of April 15, 2011, there were a total of 11,083,478 troy ounces of gold bullion in the COMEX warehouse and depository, of which 2,354,041 ounces were registered, and 8,729,437 ounces were eligible for delivery.

As of April 15, 2011, there were a total of 102,820,120 troy ounces of silver bullion in the COMEX warehouse and depository, of which 41,039,056 ounces were registered, and  61,781,064 ounces were eligible for delivery.

Scroll down to the bottom of this NYMEX Daily Reports page, and click on Gold Stocks and Silver Stocks, respectively to verify the numbers:  http://www.cmegroup.com/trading/energy/nymex-daily-reports.html

As anyone with a pulse knows by now, the University of Texas endowment fund announced they took delivery on $1 billion worth of gold bullion, representing approximately 5% of assets under management (total asset value of $19.9 billion). <click here>

I've posited this will open the floodgates for pensions, endowments, and other institutional fund managers to diversify some of their assets into gold and silver to provide protection against a debased USDollar.

5% of $17.5 trillion is $875 billion.

COMEX gold inventory is 11,083,478 oz. X $1490/oz. = $16.5 billion approximately.

COMEX silver inventory is 102,820,120 oz. X $43/oz. = $4.4 billion approximately.

Hence, if retirement funds allocate just 5% of their assets to gold and silver, their total purchasing power is $875 billion.  Those funds will be chasing assets that are now only worth $20.9 billion (at today's prices).  Hot money will pile into asset classes that are scarce.  Surely, something has to give, and when there are more dollars chasing fewer gold and silver bars, this can only mean one thing for the prices of both gold, and especially silver.

Of course, many reputable, conservative money managers recommend up to 10% ownership in the precious metals sector, at which point the purchasing power of the retirement funds is now $1.75 trillion.  In order to solve that equation, $20 billion has to appreciate to $1,750 billion, while inventories are not rising (mining output for gold is increasing a minuscule 1.3% annually, while supplies for silver are plunging due to surging industrial and investment demand).

Does this imply that gold and silver prices have to appreciate 100-fold to satisfy demand?  Perhaps not, but it definitely refutes the notion that gold and silver at current prices ($1490 for gold and $43 for silver) are too richly valued.  Do not confuse price with value.

See disclaimers in the side bar.

Disclosure:  long precious metals equities.

A Golden Tipping Point: University of Texas Takes Delivery Of $1 Billion In Physical Gold

In case it didn't dawn upon readers the significance of the University of Texas endowment fund taking delivery of $1 billion of gold bullion, this is the 3rd blog I'm posting on it, since Zero Hedge has a good angle on the tipping point this represents.  Physical gold is now a legitimate asset to hold for institutional investors.  Expect other pension and endowment funds to follow suit, which is of course, bullish for gold.

Again, the Bloomberg article doesn't address the counterparty risk by having the gold stored in HSBC's vault, but the comments from Zero Hedge readers certainly acknowledge the risks.

http://www.zerohedge.com/article/golden-tipping-point-university-texas-takes-delivery-1-billion-physical-gold

Debunking Anti-Gold Propaganda

http://www.dailywealth.com/1704/Debunking-Anti-Gold-Propaganda

U.S. Is Bankrupt and We Don’t Even Know It: Laurence Kotlikoff

I blogged about this LAST YEAR <click here>, so yes, today's S & P "surprising" negative outlook on US debt was not surprising to some of us.  Far from it--in fact, we've been pounding the table.

http://www.bloomberg.com/news/2010-08-11/u-s-is-bankrupt-and-we-don-t-even-know-commentary-by-laurence-kotlikoff.html

Budget Cuts are Meaningless Without Fed Transparency

http://paul.house.gov/index.php?option=com_content&view=article&id=1851:budget-cuts-are-meaningless-without-fed-transparency&catid=62:texas-straight-talk&Itemid=1&Itemid=69

The worst advice I’ve seen in years

http://www.sovereignman.com/expat/the-worst-advice-ive-seen-in-years

Putting its money where its mouth is, Dagong has a long-standing, negative outlook on US debt that doesn’t pull any punches. From its November 2010 report:

“In essence the depreciation of the U.S. dollar adopted by the U.S. government indicates that its solvency is on the brink of collapse, therefore it wants to cut its debt through the act of devaluation with the national will; such a move has severely harmed the interests of creditors.”

Following suit, S&P stunned financial markets this morning by revising its US outlook to ‘negative’, citing politicians’ inability to address medium-term and long-term challenges.

In total contrast, US News and World Report published an article a few days ago entitled Why you should buy U.S. Treasuries,” which amounts to the worst advice I’ve seen in years. 

The article is devoid of any clear analysis which could support loaning our hard-earned savings to the most indebted nation in the history of the world in a rapidly depreciating currency at rates which have little chance of keeping up with inflation; instead, the author relies solely on patriotism:

“It has always been a bad idea to bet against America and our ability to prosper even against overwhelming difficulties. America will cut back its spending, innovate, and pay off its debts. We will earn our way out. It’s just how we do it…”

A more accurate statement would have been, “that’s how we used to do it…” Fact is, America’s economic problems are deep-seeded and neither political party can put forth a viable strategy for righting the ship. Even S&P is starting to realize this.

This is essentially the same strategy the Japanese government has executed on its own citizens for over two decades:  jam Japanese government bonds down their throats, and encourage them to accept 0% returns on their hard-earned savings in exchange for feelings of patriotism.

The Reason For Geithner's Weekend Media Whirlwind Tour: White House Learned About S&P Downgrade On Friday

Where was my Friday call, Timmy?  I guess Lloyd, Jamie, and Bill were higher on the priority list.  By the way, I believe that allowed the primary dealers to front-run the market, which is highly unethical, if not outright illegal.  But hey, it's all just policy, right? 

http://www.zerohedge.com/article/reason-geithners-weekend-media-whirlwind-tour-white-house-learned-about-sp-downgrade-friday

The Onerous Compliance Cost of the Internal Revenue Code

Thanks to Brian for finding this video in reinforcing my point in one of my earlier debates with some friends.  You all know how I hate debates.  :-)

http://www.youtube.com/watch?v=XX8EswfGKQw&feature=player_embedded

Greek 2 Year Bond Yield Passes 20%

As Greece burns (again), <click here> Greek bonds implode as bond yields rates soar above 20%, a historic high.  The Greeks have already defaulted, and the Euro community imposed austerity measures last year in an attempt to restructure Greece.  With credit spreads widening, expect the revival efforts to fail.  As many consumers and debtors already know, when interest rates rise north of 20%, it is virtually impossible to pay down the debt, without a huge increase in income growth. 

http://www.zerohedge.com/article/greek-2-year-bond-yield-passes-20

Texas University Takes Cue From Kyle Bass to Hold $1 Billion in Gold Bars

http://www.bloomberg.com/news/2011-04-16/texas-university-takes-cue-from-kyle-bass-to-hold-1-billion-in-gold-bars.html

“Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services,” Bass said yesterday in a telephone interview. “I look at gold as just another currency that they can’t print any more of.”

I blogged about this last week, but wanted to reiterate that the University of Texas Endowment fund took delivery on $1 billion of physical gold bullion--not an ETF, for reasons I've blogged about many times.  Use the Search function in this blog and enter "GLD" and "SLV" on why it makes sense to avoid those precious metals-based ETF's for gold and silver, respectively.

In a nutshell, those ETF's are good proxies for spot prices of gold and silver UNDER NORMAL MARKET CONDITIONS.  But under distressed conditions, or in the case of a default in the physical markets (i.e. the custodians don't have enough physical inventory to meet their obligations), the physical spot prices will decouple from the ETF prices.  In other words, owning GLD and SLV are merely paper claims to precious metals that may or may not exist in the custodian vaults.  In the case of a shortage, the spot price may soar, while holders of GLD and SLV will be left with owning empty claims.  There's nothing worse than betting in the right direction, and still losing everything.

This is the reason why Kyle Bass advised the University of Texas endowment fund to take physical delivery of their gold bullion, removing counterparty risk.  But there is one detail they did not account for.  Since HSBC is now the custodian for the endowment fund's gold (with serial numbers of gold bars on every certificate), HSBC becomes the counterparty risk, as bullion banks have been rumored and even prosecuted for charging storage fees to clients even though their clients' inventory is no longer in their vaults.  In other words, their clients' gold had been swapped, sold, or leased out--without knowledge and consent from the client!  I'm not suggesting HSBC has been guilty of this in the past, but it has happened.  <click here>

In June of 2007, Morgan Stanley agreed to pay $4.4 million to settle a class-action lawsuit with brokerage clients who bought precious metals and paid storage fees, when in fact it was alleged that Morgan Stanley wasn't physically storing their gold and silver at all. NIA believes we may now have an epidemic of banks selling gold/silver they don't have. If this isn't exposed immediately, it could bring down the world's financial system.

See disclaimers in the side bar.

Disclosure:  long precious metals shares, no position in GLD, no position in SLV.

Gold Explodes On S&P Downgrade Warning

http://www.zerohedge.com/article/gold-explodes-sp-downgrade-warning

Who would have thunk that the one beneficiary of an insolvent US (with both bonds and stock futures plunging) would be gold. Oh wait...

STUNNER: S&P REVISES US OUTLOOK TO NEGATIVE

This S & P potential downgrade of US government debt alone confirms US Treasury Secretary Tim Geithner lied when he declared "the US will never lose its AAA credit rating" <click here>.

This is the same Standard & Poor's, like their peers, which totally missed the mortgage industry implosion--and were deservedly criticized for being asleep at the wheel after blessing toxic subprime mortgage-backed securities with a AAA rating as well.  I guess S & P got tired of the criticism and decided to do their job of dispensing the truth after all. 

http://www.zerohedge.com/article/stunner-sp-revises-us-outlook-negative

Anarchy erupts in Greece as austerity bites

The Greek debt crisis was so last year, with the middle east, north Africa, and Japan garnering the headlines.  Surprise--Greece is burning again.  As with most sovereign debt crises--they don't go away.  They get worse as credit ratings plunge, debt-servicing costs soar, and insolvency rears its ugly head again. 

http://www.independent.co.uk/news/world/europe/anarchy-erupts-in-greece-as-austerity-bites-2269023.html

NATO Runs Short of Munitions in Libya

This is what happens when bankrupt countries mount a war.  But hey, we need the oil. 

http://defensenews.com/story.php?i=6254304&c=MID&s=AIR

NATO is running short of precision bombs and other munitions in its Libyan operation against the forces of Libyan leader Moammar Gadhafi, The Washington Post reported April 15.

Citing unnamed senior NATO and U.S. officials, the newspaper said the shortage highlights the limitations of Britain, France and other European countries in sustaining even a relatively small military action.

The shortage of European munitions, along with the limited number of aircraft available, has raised doubts among some officials about whether the United States can continue to avoid returning to the air campaign, the report said.

Anatomy of a short squeeze

A short squeeze is one of the reasons my long-term price targets for gold is $6300 and for silver is $400.  The calculations were based on trough-to-peak valuations of other asset bubbles, including the 1970's bull market in precious metals, housing stocks, and internet equities.  Other variables include money supply metrics (M1, M2, M3) relative to above-ground gold reserves.  For silver, the gold/silver ratio falling to normal ranges was the overarching factor.

Of course, if the USDollar collapses, all bets are off, and these seemingly outlandish mental price targets will be proven conservative. 

http://www.goldmoney.com/gold-research/anatomy-of-a-short-squeeze.html

Silver offers the closer parallel with the London Bridge example. There are a few banks with large short positions in silver on the US futures market in quantities that simply cannot be covered by physical stock. The outstanding obligations are far larger than the stock available. The lesson from the London Bridge example is that prices in a bear squeeze can go far higher than anyone reasonably thinks possible. The short position in gold is less visible, being mainly in the unallocated accounts of the bullion banks operating in the LBMA market. But it is there nonetheless, and the bullion banks’ obligations to their bullion-unallocated account holders are far greater than the bullion they actually hold.

But there is one vital difference between my example from the property market of 1974 and gold and silver today. The bear who got caught short of London Bridge Securities was right in principal, because LBS went bust shortly afterwards; but in the case of gold and silver, the acceleration of monetary inflation is underwriting rising prices for both metals, making the position of the bears increasingly exposed as time marches on.

Perhaps the most important lesson we can learn from the LBS situation – and highly applicable to the situation today in precious metals, which could be developing into the largest short squeeze in history – is that very few other people in the investment community actually understand what is happening. This is something to bear in mind when taking investment advice.

See disclaimers in the side bar.  Any price targets are of the opinion of the author only, and should not be used as investment guidelines.

Disclosure:  long precious metals mining shares.

China Property Softening Fuels Gold Demand-JPMorgan

I blogged about the Chinese commercial real estate bubble last year, specifically about this empty shopping mall, the world's largest:

Watch the full episode. See more POV.

Today's headline:
http://www.morningstar.co.uk/uk/markets/newsfeeditem.aspx?id=138501958068222