Friday, July 29, 2011

Obviously the GDP Number Was A Lot Worse Than Expected

by the overpaid geniuses on bubblevision TV and Wall Street.  Most of them really missed the boat badly on this one.  If a REAL inflation number was used to adjust nominal GDP into the number that was reported, I'd bet my last 1 oz. silver eagle that real GDP was negative by quite bit.

Here's a couple of other real economy news reports that should explain just how weak the economy is and just how imminent QE3 is:

Container-Ship Plunge Signals U.S. Slowdown - Plunging rates for chartering container vessels that carry sneakers, furniture and flat-screen TVs may signal a U.S. consumer slowdown and losses for shipping lines in what is traditionally their busiest time of the year.  LINK

Juniper Sends Grim Signal - Juniper Networks Inc. offered some new clues that the U.S. economy is stalling, warning of slowing sales growth that sent its stock plunging 21% in trading Wednesday.  LINK

Merck to Cut Up to 13,000 Jobs - Merck is cutting costs, expanding in emerging markets and spending on research and development...LINK

Good to see that Merck is following the example set by Obama's jobs Czar - GE's Jeffrey Immelt - and cutting jobs here and shifting the workforce to emerging markets.  I'm guessing this is Obama's implicit yet official jobs policy now.

And here is what a former Chinese central banker is now advising Chinese policy-makers:  Yu Yongding Says China Needs to Hold Less Treasuries as Safety a ‘Mirage’ - “U.S. bonds are not safe, but people think they are safe,” Yu, a researcher at a Beijing institute under the Chinese Academy of Social Sciences, told reporters at a briefing in Mumbai, India, today. “That is a mirage.”   LINK

It will be just wonderful if we get a new debt-limit deal - and we will.  But who the hell is going to buy all the new Treasury bonds that have to issued if our largest financier - the Chinese - decide to stop being the monetary crack dealer for our abusively reckless Government?  Are you?  I'm not...

Anyone not moving most of their investible money into gold and silver right now is an idiot.  I have 90% of my net worth in the physical metal and in mining stocks.  Everyone needs to understand that the dollar is going a LOT lower.  Knowing that, why on earth would you want to own anything denominated in dollars?  And that includes any metals ETF other than PHYS and PSLV.  Yes, technically mining stocks are dollar assets, but I anticipate that because their business is gold and silver, the price performance of mining stocks will far outpace the rate of decline in the dollar. 

Here's a good illustration of my point, with a chart from Sharelynx that shows how the value of your house is declined when you price it in terms of gold:


Off to play in a tennis tournament - have a great weekend everyone!

Thursday, July 28, 2011

Obama's Main "Jobs" Man Moves More Jobs To China!

"My man!"  Jeffrey Immelt, CEO of General Electric and the head of Obama's Jobs Council, is moving GE's 115 year old medical x-ray business over to China.  GE is the world's largest manufacturer of medical imaging machines. Here's the Bloomberg news release:  LINK

This is right out of Orwell's playbook.  I really thought that it would be impossible to have a worse President than W.  But how can anyone who looks at the facts not conclude that Obama is at least as bad, if not worse?  So to have the man in charge of coming up with policies that are supposed to create jobs  be responsible for the  movement of more jobs to China is just brilliant.  Next thing you know my main man Obama will appoint someone who cheats on his taxes to run the Treasury...

I'm laughing right now because this is so absurd.  How can anyone take Obama seriously?  At least with Bush we knew what we were dealing with.   Obama is actually more dangerous than Bush because there still seems to be a fairly large percentage of die-hard - albeit brain-dead - supporters who still have "hope" and "faith." 

I wish I had a phone list of those supporters because I could make a lot of money selling them pet rocks and mood rings...

Wednesday, July 27, 2011

Google Stock To $1500?

And people think there's a bubble in gold?  The bubble out there that is inflating is the bubble in "new generation" internet/tech stocks.  GOOG, AAPL, AMZN, NFLX.  Here's an analysis by James Altucher, who I think is the current Pied Piper of the stock market with his outrageous bullishness based on pure fluff.  Here's the analysis he presents to support his argument for a $1500 GOOG:  LINK

Please note that his analysis is largely based on a regurgitation of the old internet stock valuation metric from 1999-2000 of "clicks and eyeballs."  In no way is his valuation analysis based on anything concrete like earnings, cash flow, market size, etc.  He does present a "forward earnings multiple," but he in no way attempts to provide a reasonable derivation of future earnings.  What happened to things like:  1) are GOOG's accounting methods credible?  2) earnings quality/sustainability 3) competition (Microsoft etc)...I would have been flunked out of my introduction to finance class at University of Chicago if I presented a stock valuation analysis as retarded as the one Altucher lays out...

Having said all of that, I will say that IF the Fed/Government continues on its policy path of debt issuance and money supply inflation, then $1500 GOOG is entirely possible, even probable.  Of course, if $1500 GOOG happens, expect that gold will be hovering around $5000 and silver around $200.  Here's a 1-yr chart of from the Fed of the money stock, M2:

(click on chart to enlarge)

As you can see, the Fed has been very busy inflating the money supply.  I'd love to see M3, the all-encompassing measurement of the money supply, but the Fed eliminated the reporting of M3 back in 2006 (Didn't Obama promise more Government transparency during his campaign?).  Now, does anyone believe that the U.S. economic output has increased this year?  Maybe a little?  In reality, if the growth in money supply outpaces the marginal growth in a country's GDP, then inflation ensues.  I truly believe that if a realistic GDP price deflator metric were applied to the Government's measurement of nominal GDP (i.e. nominal GDP less inflation, or real GDP), we would actually see a decline in GDP this year.

Please make no mistake about it, in the 5000 year history of organized civilization, whenever there has been this kind of currency debasement, rampant price inflation has ensued (and social unrest, wars, etc).  So the good news is, if you own GOOG, you might easily see your stock rise to $1500/share.  However, if you own gold and silver, you will see the value of your holdings outperform GOOG.  Even better, if you own carefully selected mining stocks, you will see those investments dramatically outperform the price performance of gold and silver.

Tuesday, July 26, 2011

Housing Just Gets Worse...

Bottom pickers become cotton pickers...the housing market isn't even close to a bottom.  The Case-Shiller index of housing prices across 20 metro areas for May was released this morning and showed a 4.5% decline from May 2010.  Recall that the C-S index is calculated in a way that discounts distressed sales data and thus is skewed to reflect a higher level of indexed prices than would a general random sample of housing transactions.  In other words, the price decline, on average and in general, is even larger than 4.5%.  Here's the report from Bloomberg News:  LINK

To make matters worse, new home sales for the month of June were also reported this morning and showed a 1% decline from May.  This is especially significant because June is in middle of the peak home selling season and interest rates are hovering near historically low levels.  Plus, if you want to believe Obama, Geithner and Bernanke, the economy is improving and this plus low rates should be stimulating home sales.  But here's the Truth: 
Last year was the worst for new-home sales on records dating back a half century. Through the first six months of this year, sales are lagging behind last year's totals.
Here's the news LINK  Although the housing market seems to declining at a slower rate than I have been expecting (I'm always early on my calls), I believe that the true condition of the housing market is even worse than is being projected by the industry/Government constructed numbers and the spin-happy media.  As I have suggested in previous blogs, the true inventory, including pending and stalled foreclosures, potential sellers waiting for the market to "come back," etc create a bigger supply than is being reported.  Furthermore, it's clear - to me at least - that the employment situation and the economy are heading south at a pretty quick pace now, reducing the demand.  If you are considering selling your home in order to save whatever equity may be left, you might want to think about trying to get that done now because I believe that the housing market could be a complete disaster - barring some sort of Red Sea-parting type of miracle - by this time next year.  Obama must believe that as well or he wouldn't be holding firm on extending the debt limit thru the 2012 Presidential election...

One quick technical point about the gold market.  As of this morning there were about 18,900 open calls at 1600 that expire today on Comex gold futures.  Historically, the big bank manipulators write those calls and then drive the market below the price point at which they've written calls in order to keep the premiums.  It's not huge money but it's been easy money for them over the last 10 years.  Today obviously those calls expired in the money by about $17, which means the holders of those calls will likely exercise their option and take delivery of futures contract.  A few months ago this same situation occurred and the manipulators hammered the silver market the day after expiration, likely creating a large number of sellers out of the traders who had taken delivery of their profit-position silver futures.  It was a very transparent manipulative move, but effective nonetheless.  IF we don't see the manipulators successfully "run the stops" tomorrow or Wed, my bet is that we will likely see $1650 gold very quickly, as this will be a very bullish signal that the gold cartel is losing its ability to manipulate the market at will.

Monday, July 25, 2011

"Obama Is The Detroit Lions Of Presidents"

Another lazy late July Monday so I thought I would celebrate the new NFL/Players agreement with the quote above that comes from an internet video interview on Yahoo with one of my favorite economic/political commentators, Howard Davidowitz.

I guess because he's entertaining and engaging - and right - Davidowitz is one of the few economic contrarians who has been given air-time on CNBC, Bloomberg TV etc over the past few years.  In the interview linked below, they discuss how miserably Obama has failed with his policies to revive the economy and, in fact, is seen on tape laughing about it: 
(Davidowitz) We've never been in a situation - that I've ever seen - where in a matter of a couple of years a guy (the President) increases the debt by 40%, GDP growth is on its way down, food stamps are up 40 - and to accomplish this this guy spent $4 trillion.
My other favorite quote is where Davidowitz comments that Obama is "laughing like a hyena [on tape]" over the degree to which his "shovel-ready" stimulus plan failed so miserably.  Davidowitz:  "the people unemployed are not laughing."  How about the people who paid for this?

Here's the link to the comments from Davidowitz, it's a little under five minutes:  LINK

The fact of the matter is that most of the jobs "created" during Obama's Presidency (and, to be sure, Bush's reign as well) have been manufactured by the fictitious accounting used by the bean-counters at the Bureau of Labor Statistics.  Real unemployment, which includes those not working but want a job plus those working part-time but would prefer to work full-time, is closer to 20%.  This is substantially higher than the 9% number fed to us by Big Brother.  Moreover, the size of the labor force as defined by the Government has declined quite a bit over the past few years.  This is because many people have simply given up looking for a job and instead had joined the growing ranks of food stamp recipients. 

As Davidowitz points out, the monthly Government jobs report will likely go negative again over the next several months.   Just recently companies like Cisco, Lockheed Martin and Borders have announced big job cuts.  This is real economy stuff - not Government fluff jobs - technology, industrial/defense, retail/consumer industries.  Many big banks and Wall Street firms have also announced big job cuts.

I'm not sure what this country can do to turn itself around other than to let the dollar decline to a level that would make our products, services and labor cost-competitive with that of the rest of the world.  Of course that would entail a substantial reduction in the standard of living to which we've become accustomed since WW2.  That decline is coming sooner or later anyway thanks to globalization.  BUT I do know that the "solutions" implemented, and then later laughed at when they fail by those implementing them, are going to make the eventual fall even more difficult and painful for everyone.

Friday, July 22, 2011

The Truth About Gold Is Seeping Into The Mainstream Media

and soon it will start seeping into the mainstream conscious and then we'll start to see the real gold rush unfold.  I think everyone knows who Rick Santelli is:
“Ron Paul last week asked Chairman Bernanke during the Humphrey Hawkins type hearings if he thought gold was money and he (Bernanke) said, ‘no.’ My answer would have been, it’s better than money."
Here's the link to the short interview from King World News:  LINK

I was chatting last night with a financial advisor from a large financial services company who said he had been watching gold but was afraid that he has missed the opportunity.  What's amusing about this is that I've had this same conversation with financial industry "pros" since gold went over $500.  As long as the mainstream hoi polloi and their rocket scientist financial advisers feel this way about gold, the bull market in precious metals and mining stocks will be easy money for those of us who get it.

When I started doing this sector back in 2001, I thought $5,000 would be a lay-up and that it might take 5-7 years to get there.  I had no idea that the skepticism and lack of understanding of this market that was so pervasive back then would still be nearly as pervasive now.  In fact, back then, no one even knew what gold was other than maybe Keynes' "barbarous relic."  Now, skepticism is nearly as pervasive and, in fact, the negativity toward the sector, per the constant "bubble" references in the mainstream media and from the big Wall Street advisers, has proliferated.  This dynamic serves to further strengthen the argument for the gold bull. 

Because of this, I now confident that $10,000 gold is a lay-up, although I have stopped putting a time-frame on my views because the markets are so incredibly manipulated and I believe that the financial and political oligarchs (i.e. the people who control Obama and Congress) still have room to prolong the day of reckoning for our system.

In the meantime, here's one of my favorite pics from the Amalfi Coast - this is on the beach in Positano:

Thursday, July 21, 2011

Things Keep Getting Worse...

First, anyone who has not read this commentary out yesterday from Casey Research needs to read it.  One of my theses is that our Government has been morphing into the type of totalitarian control portrayed by George Orwell in "Animal Farm" and "1984."  The signs are everywhere, but please read this if you think I'm nuts:
Sometimes it seems that the more we write about the rise of the surveillance state, the more examples of its long-armed reach pile up. Recently, a couple of new (to me, anyway) developments caught my eye  Big Brother is watching you
Second, it was reported on Tuesday that new housing starts hit a 5-month high.  That's great, but who are they going to sell these new homes to?  On the heels of that report, the National Association of Realtors reported that existing home sales for June dropped to a seven-month low.  Hmmm...June is supposed to be one of the peak selling months of the year.  Not only that, but the cancellation rate for contracts booked in May spiked up to 16%.  Not only that, but inventory - as measured strictly by the NAR - enlarged.  Not only that, but the way the NAR reports its data has been under scrutiny for quite some time and by some accounts the NAR has overstated sales historically by as much as 20%.  The NAR is reviewing its methodology but my bet would be that their numbers suck.  Here's a news report:  LINK  The bottom line is that the housing market is not even close to a bottom..

Before you argue with my view, take a look at some hard proof that the fundamentals underlying the housing market are deteriorating.  MGIC, the mortgage insurer, issued its quarterly earnings on Monday and reported a big loss due to liability payments it had to make on growing portfolio of insured mortgages going bad.  The stock got hammered.  Here's the LINK  To add to this, Genworth, the insurance business spun-off by GE, reported last night that its earnings for the quarter would be hit by a $300 million charge it would take in order to reserve against increasing liability at its mortgage insurance unit.  Here's the LINK

The dynamic here is that not only are the buyers in the housing market drying up, but on average the ability of homeowners to make their monthly mortgage nut is declining.  I find it quite amusing that the TBTF fail banks have been reporting earnings this quarter which are driven by non-cash, non-economic earnings manufactured by reducing their reserves for bad mortgages and credit cards.  Obviously the decision to assume lower mortgage write-offs down the road looks to be pre-mature based on the actual experiences being reported by MGIC and Genworth...Funny because the headline coming across Marketwatch as I write this says "U.S. stocks rise on optimism for financials."  LOL

Finally, contrary to the happy proclamations by Bernanke and Geithner that the economy is improving, again real life experience is proving that things are getting worse, as now consumers are starting to put an increasing amount of their necessity purchases on a credit card:
Consumers, particularly in the lower-income end, are being forced to use their credit cards for everyday spending like gas and food,” said Tavares, who’s based in Atlanta. “That’s because there’s been no other positive catalyst, like an increase in wages, to offset higher prices. It’s a cash-flow problem
Here's the LINK  I would like to point out that food and gasoline are two major consumption components that the Government uses to calculate its widely used measure of inflation (the core CPI).  It's also the same metric that Bernanke uses when he lectures to everyone that there is no inflation in the system...To that I simply say "things keep getting worse" - Orwell is smiling in his grave.

Wednesday, July 20, 2011

Must Read: Ron Paul's Statement On Debt Limit Legislation

To start, I wanted to link a statement issued by Moody's yesterday that suggested that Congress should get rid of the debt ceiling limit entirely.  I had to rub my eyes and drink more coffee before I reread the headline to make sure I read it correctly.  Here's the LINK

To say that this idea is absurd truly underestimates the meaning of the word.  I understand the notion of getting rid of any future uncertainty over whether or not funding will be available to pay off bondholders by eliminating the all limitations on the amout debt the Government can issue.  However, this idea makes me wonder if the people running Moody's might perhaps be a consortium of "mentally challenged," aka retarded, individuals.  This nonsensical statement by Moody's is Orwellian in the extreme...

As Ron Paul argues eloquently and logically in the link below, the only way to solve what is right now a seemingly unsolvable problem is to start taking a giant butcher's knife to the entire Government, across the board.

As Congressman Paul states, we need to first start by drastically reducing the "sacred cows" of defense spending, entitlements and Social Security/Medicare:
These three budget items already cost nearly $1 trillion apiece annually. This means we can cut every other area of federal spending to zero and still have a $3 trillion budget. Since annual federal tax revenues almost certainly will not exceed $2.5 trillion for several years, this Act cannot balance the budget under any plausible scenario.
The heart of the underlying issue is the overall size of Government and Congress needs act against Obama and Bernanke and start aggressively reducing the size, power and scope of Government:  Here is the link to Mr. Paul's speech, and I would urge everyone to read it:  LINK
As Milton Friedman famously argued, what we really need is a constitutional amendment to limit taxes and spending, not simply to balance the budget. What we need is a dramatically smaller federal government; if we achieve this a balanced budget will take care of itself.

Monday, July 18, 2011

What To Look For In Advance Of The Big Collapse

I'm a bit short on time today and a commenter asked my views in the comment section about what "signs" in the market to look for in order to try and anticipate a systemic/dollar collapse in this country.  He was referencing a view by "Another," an anonymous individual who started writing views on the global financial system back in the late 1990's.  This person and a "friend of Another" were mapping out the demise of fiat currencies and the eventual collapse of the global financial system long before most of us even knew how to spell "gold" and "banking cartel."  Anyway, you can read the inquiry comment in the comment section of yesterday's post and I kind of like what I wrote in the comment section in response, so I polished up that response and decided to post it:

I'm not sure if there will be definitive signs that will tell those watching for them that "it's over." Right now everything is in a slow-motion state of collapse dating back to probably the 1970's "oil crisis," but really to the closing of the gold window. Since then, starting with the junk bonds/S&L crisis, we've have successive bubbles and blow-ups, each one getting bigger and more vicious - each one a catalyst to transfer massive wealth from the middle class to the political and business elite.

I truly believe Clinton could have turned things around after the Long Term Capital collapse, but Rubin and the other puppet-master bankers/oil barons/defense industry magnates already had their hooks too deep into the Oval Office. Ironically, and I'm not the only one out "there" to remark on this, it was during the populist Clinton's Presidency that the extreme and blatant corruption we see on Wall Street and DC seems to have accelerated. Hell, Clinton himself barely had a pot to piss in when he entered the White House and now he's worth $100's of millions. I don't recall that ever happening to Harry Truman...You think that Clinton "self-made" that wealth? LOL

In terms of predicting "THE Event," I dunno. How many really wealthy people in Germany with billions in marks in the bank on November 13, 1923 thought they would wake up on November 14 to see their paper wealth literally incinerated? Surely "insiders" were looking for signs that the mark would collapse. The revaluation was 1 billion to 1. On November 13, 1923 if you had a billion marks in the bank when you went to bed, the next day when you woke up you had 1. Although the process of collapse is accelerating, the actual "Event" historically seems to happen all at once. And you have to be prepared a long time in advance in order to set up your plan of protection and you have to be prepared for the insanity to drag on a lot longer than you truly believe that it can.

I think this situation has more time to play out and I've stopped putting out timeframe predictions. For sure our country won't last as it is until 2020, probably not even 2015. But then again, I thought in 2002 that where we are now is where would be by 2006/7. They have run out of assets to bubble up, so now I think you'll eventually see wealth confiscation via retirement fund confiscations in the form of exchanges for "Government guaranteed" Treasury annuities.  In fact, I said back in 2002 that our system would not collapse until the ruling elite (bankers/politicos) had swept every last crumb of middle class wealth off of the table. That "last crumb" of wealth most people have left is their retirement assets.  We will also see the Government implement stronger totalitarian control over the citizens (that's happening already).

Think I'm nuts? The concept of the Government taking over the retirement fund system has already been discussed in Congress, including an academic presentation to Congress back 2008. They'll need those assets to pay for the Government spending and they'll issue Treasury bonds in exchange.  Most States have already done that with State employee pension plans and the Federal Government has already done that with the funds in the Social Security Trust and they started doing that a few weeks ago with the Federal pension assets (to the tune of a couple hundred billion).  Expect that gameplan to eventually expand into all retirement asset plans public and private.  As they lose control of the ability of the global financial system to finance the Government and lose control of the value of the dollar and the value of precious metals, the Government will impose its political will more forcefully on the citizens. The ability to make all of this happen has already been legislated via the Patriot Acts (1 and 2), the Homeland Security Act and the Detainee Bill.

The only way to avoid this is to leave the country, which people are doing in record numbers every year. Owning gold and silver will help a lot if you stay here, because you want to move as much as you can out of paper assets and out of "the system" and into gold and silver and out of the Government's ever-expanding "reach."  We could well see the black market scenario to which Another refers because once the dollar/system actually collapses, there won't be much gold/silver for sale, as those who don't have it but have goods to offer will only accept gold/silver in exchange and those who do own it will hold onto it to trade for things they need.  In the best-case scenario after the collapse, a new system of gold/silver-backed currency will quickly fill in the "vacuum" left by the collapse and that will help restore a more "normalized" system of commerce.  The worst case scenario?  Read "The Road" by Cormac McCarthy.

Before that, I bet we see at least $10k gold and $500 silver...

Sunday, July 17, 2011

Obama Is A Failure - By His OWN Accounting:

Senator Obama in 2006:

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills...Americans deserve better

Got gold?

Friday, July 15, 2011

Gold Is Now A Flight To Safety Refuge?

I noticed when I was on vacation that the business media has begun to refer to gold as "a flight to safety" investment vehicle.  I find this quite fascinating because all throughout the first 10 years of this quiet bull market in bullion, gold has been viewed as a "risky" investment that "failed" to demonstrate "safe haven" characteristics.   But here's none other than anti-gold Bloomberg news reporting on gold's safe-haven status a few days ago:
 “With the currency volatility and the debt-contagion risk in Europe, investors are gravitating toward something tangible like gold,” said Adam Klopfenstein, a senior strategist at Lind-Waldock, a broker in Chicago.  LINK
What's stunning to me about this is that up until now, Bloomberg has always associated gold with risky investments and the talking heads on Bloomberg t.v. have always gone out of their way to portray as gold as a bubble asset with a lot of risk.

Of course, we all know that the percentage of smart capital that has been slowly flowing into gold for the last decade is infinitesimal compared to total amount of investment capital globally.  But what we are seeing now is that large institutions and Central Banks (other than the U.S. Fed and the ECB) are starting to allocate a little more capital into gold and gold-indexed investments (Texas State Public Pension System, Northwest Mutual, a few large hedge funds in the U.S., Government of Mexico, etc).  Imagine what happens to the price of gold when a lot of really big U.S. fund management entities like Pimpco, Fidelity, Vanguard and CALPERS actually start to move just 5% of their funds into the tiny precious metals market (tiny compared to the value of stocks on the NYSE)...imagine the pressure created trying to stuff a beach ball into a test tube...This is why guys like Jim Dines and John Embry predict that eventually the action in the mining stocks will make the price moves we saw during the tech bubble look quite tame.

As the media continues to start promoting the idea of gold as being a safety refuge from reckless Governments on the brink of default - i.e. almost every Government - the amount of capital that flows into both gold and silver will accelerate.   It is this dynamic that inspires someone like Ben Davies to predict $2000 gold this year:  LINK

I've been trading this market for a bit longer than Davies and I think $2000 gold this year is a bit optimistic, although I'm for sure not ruling it out.  But we will see at least $2000 gold before next summer in my view.  However, in the spirit of celebrating this subtle shift in the media's view of gold, I wanted to highlight this must-read article from the Telegraph-UK, which I think has the most legitimate business reporting of any major media publication.  This latest article discusses the re-emergence of gold as the global currency of choice:
"It is very scary: the flight to gold is accelerating at a faster and faster speed," said Peter Hambro, chairman of Britain's biggest pure gold listing Petropavlovsk. "One of the big US banks texted me today to say that if QE3 actually happens, we could see gold at $5,000 and silver at $1,000. I feel terribly sorry for anybody on fixed incomes tied to a fiat currency because they are not going to be able to buy things with that paper money."   LINK 
It's quite amusing for me to see this shift take place.  When my partners and I first met back in early 2008 to discuss launching a precious metals and mining stock investment fund, I said that we would be begging people to invest with us with gold at $1000 but that we would be turning away new money when gold was over $2000.  In fact, the lawyer who wrote our partnership agreements thought we were nuts and said $800 gold was the peak.  Now that I'm firmly convinced that the we'll see at least $10,000 gold and $500 silver, I guess we'll just have to open up a new fund...

The Duomo in Florence:  It took 600 years to build this baby

Thursday, July 14, 2011

Back From Italy

The good news is, contrary to the prediction of la mia ragazza, I didn't catch on fire and spontaneously combust walking into the Sistine Chapel.  The bad news is, my camera battery went dead before I could snap any ceiling photos, which you're not supposed to do but the Chinese were doing it, so I would have. 

Exhausted so this will be short.  I see Bernanke said yesterday to the House that he is prepared to unleash QE3 if it is needed, then back-tracked a bit today by saying the Fed was not prepared to print more money right now.  I looked back at my posts and see that I first suggested QE3 would be inevitable back on Feb 1st:  LINK

To be sure, the economy is tanking hard despite the b.s. coming from Obama/Geithner/Wall Street.  I'm sorry, but the employment situation is getting worse, auto inventories at the dealer level are piling up like dogs below a cat on a hot tin roof and housing continues to slide into oblivion.  Expecting much larger crowds in Italy than I encountered, I was quite shocked by the absence of Americans everywhere I went, especially in Rome. That's all about the rapid decline in disposable income resulting from high unemployment and the ravages of real - not the measured-by-the-Orwellian-Government - inflation.

But make no mistake about it, the Fed's money priniting is first and foremost all about keeping the big banks from collapsing.  The real story behind the sovereign debt problems accelerating in Europe is the degree to which U.S. TBTF banks are exposed to credit default swaps. We just don't know the answer to that question because GAAP reporting and accountability requirements are abysmal - and what regulations are in place are never enforced by the SEC, NASD, Geithner or the Fed.  I bet most big bank CEO's don't even know the truth about their own bank's derivatives liability exposure (recall Franklin Raines just scratched his head when queried about Fannie Mae's derivatives book just before FNM collapsed and Raines was canned).  I would opine and suggest that the big U.S. bank paper/cash exposure from derivatives to EU sovereign debt in danger of defaulting  (Greece, Italy, Spain, Portugal, Ireland, Iceland) is in the high multiples of $100 billion.  If Greece nominally is a $300-400 billion problem, Italy nominally is a $2 trillion problem.  Given what happened after Bear/Lehman/AIG, I think my estimate of the derivatives exposure is modest...

Secondarily, QE is about funding the U.S. Government.  Right now the Treasury (i.e. Geithner's handlers) are tapping into the Federal pension fund system for a few hundred billion in order to keep funding social security/medicare, the 9 million people getting unemployment, the 44 million getting food stamps, and our hedonist military aggression globally.  Without the Fed buying up most of every Treasury auction since last December, interest rates would be substantially higher OR these programs would have to be drastically cut.

If you want to know what the smart money thinks about the situation, take a look at the trading charts for gold and silver over the last two weeks.  A couple of really really intelligent market seers have have been forecasting price targets for gold and silver by the end of the summer that most people refuse to believe ($1600-1800 for gold and $50 for silver).  I actually think we could easily see much higher prices by the end of September, after the Indian buying season has kicked into full gear. 

And James Dines now forecasts $300-500 silver eventually.  For anyone doing the metals since 2001, you know that James Dines' predictions for this sector dating back to at least 2000 have been frighteningly accurate.  I see no reason to doubt his price forecast for silver, which means $6000-$10k for gold if the gold/silver ratio falls to 20 (I believe it will eventually go well below 20).

Vernazza, Cinque Terre:  The Italian Riviera

Thursday, July 7, 2011

Buongiorno da San Gimignano, Italy (Heart of Tuscany)

It's beautiful here in "San Jimmy G" and you certainly wouldn't know that Europe and the U.S. are financially melting down from the heat of too much debt.  The Brits and Euros here certainly have no idea.  But here it is:  LINK

Please note how that article is NOW attributing the rise in gold to higher Chinese interest rates and the flight to safety from Euro debt.  How ironic since it was very recently that gold would get hammered when the Chinese raised their short term banking rates.  And since when is gold now described as being a "flight to safety" refuge?  LOL

But there it is, in black and white from - no less - the U.S. media.  If you notice, gold and silver have staged a massive rally over the past few days, despite very weak equity markets.  This is the "dislocation/flight to safety" attribute I've been looking for which will precede another big move higher in the price of the yellow dog and it's monetary cousin. 

For everyone scratching their head wondering why analysts like James Turk and John Embry are calling for a big move in gold this summer, please re-read the above-linked article and understand that historically, gold has made its best moves when interest rates are rising.  And rising not because economies are getting stronger, but because inflation is accelerating (money supply expansion = inflation) AND because investors are losing any remaining faith in sovereign-backed paper investments.

Basta! (Enough for now).  Time to go enjoy the surrounding hills covered with olive trees and sangiovese and nebbiola grapevines!  Then on to Cinque Terre (the Italian Riviera) and then Rome!  Ciao ciao! (And buy more gold before it gets even more expensive!).