Monday, December 31, 2012

My Happy New Year Present To All

The Fiscal Cliff farce will be "fixed" one way or another.  All you have to do is look at where the carrots are hanging in front of the Asses and Elephants.  In fact, Obama just gave the children in Congress a nice pay raise, but they won't get any pay if the "Cliff" kicks in and the debt ceiling limit isn't raised/eliminated.
In the meantime,  most serious students of value/fundamental investing like to focus on long term trends.  The long term trend for gold has been 12 years in a row of gains.  And we all know the fundamentals become stronger by the day to support several more years of gains.

With that in mind, I recently went to the Van Gogh exhibition at the Denver Art Museum.  It is probably one of the best art exhibitions I've ever seen (after spending time in museums in NYC, Chicago, Paris, Italy, etc).  The exhibit uniquely spans Van Gogh's entire artistic career and I learned aspects of his artwork and its development about which I had no prior knowledge (like a heavy influence of Japanese art underlying his color scheme and strokes).  The exhibition truly blew me away in depth, scope AND the fact that it was assembled in Denver (not exactly an art mecca).

In honor of one of the greatest master artists of all time, I have to say that I don't think even Van Gogh could reproduce this 12-year, weekly visual of a raging bull market in process:

(click on chart to enlarge)

Not much to say about that chart - it's pretty much self-explanatory.

Have a safe and happy New Year celebration.  I suspect that the 2013 will be a very happy year for precious metals and mining stock investors.

Sunday, December 30, 2012

While "The Cliff" Approaches, Congress/All Federal Workers Get A Nice Pay Raise

According to disclosure forms, Biden made a cool $225,521 last year. After the pay increase, he'll now make $231,900 per year.  (link below)
While most of us watch in complete disgust as our leaders in Government grandstand and play politics before inevitably kicking the can down the road on meaningful fiscal reform, Obama signed an Executive Order this weekend mandating nice pay raises for all Federal employees.   Think about that the next time you are in a Government office waiting for some moron to finish up his/her personal phone call before to do their job and help you:  Obama Orders Federal Pay Hikes 

I suggested about a month ago that the "Cliff" issue would be settled and that spending and debt borrowing would continue to increase at an accelerating pace.  Next up, either a large increase in, or total elimination of, the debt limit ceiling.

To hear some Truth about this whole situation, take the time to listen to what outgoing Congressman, Ron Paul had to say on CNBC on Friday:

Saturday, December 29, 2012

What Gold Bubble? Mining Stocks Are Dirt Cheap

When the people fear their government, there is tyranny; when the government fears the people, there is liberty  - Thomas Jefferson
I thought of that quote when I read yesterday that the U.S. Senate has extended the law enabling the Government to search our emails and monitor our cellphones without a warrant.  This country is collapsing...

I wanted to revisit briefly the notion that gold might be in some kind of bubble.  A lot of people have contacted me expressing disappointment with gold's recent behavior and many have dumped their mining stocks or plan to do so.  This is a  mistake.

First, assuming it doesn't drop around $95 on Monday, gold will have completed its 12th straight year of year-over-year gains.  Name one other asset class that has done that.  In terms of reaching a new high, gold did that in August 2011 and the new high was followed by the current price correction cycle.  These cycles typically last an average of 18 months, so we are nearing the end of this correction cycle.

Finally, I was struck by a chart posted by which shows the serial decline of gold demand in the western hemisphere.  I wrote about that  HERE  As you can see, based on demand metrics gold is decidedly not in an investment "bubble."

From a fundamental standpoint, the mining stocks, as represented by the HUI Amex Gold Bugs Index of unhedged mining stocks, are as cheap relative to the price of gold as at any time over the last three years. This is actually true going back 10 years. As you can see from the HUI/gold chart I posted in the linked article, the HUI/gold ratio chart has consolidated just above a 3-yr low, after testing the 3-yr low twice. To reinforce the potential bullishness of the mining stocks, the momentum indicators represented by the RSI and MACD are moving higher from an "oversold" condition.

My prediction for 2013 is that it will be a very happy year indeed for anyone aggressively invested in the precious metals and mining stock sector. 

Monday, December 24, 2012

Wash, Rinse, Repeat: Is The Latest Pullback In Gold/Silver Over?

You play to win the game...You don't play to just play it  - Herm Edwards, when he was head coach of the NY Jets LINK
In order to win the gold/silver game, spotting critical information and knowing how to use can give us an edge over the rest of the market.  Using the COT report as source of information has proved useful over the last 10 years.

Last  week I suggested that the COT report might show that hedge funds have started to chase the momentum of the gold market lower by shorting gold contracts, while the bullion bank cartel used the extra selling from hedge fund short-selling to cover their shorts. I suggested this dynamic would likely mark a bottoming of this latest bullion bank paper market take-down of the price of gold/silver.

The CME/Comex Commitment of Traders report released Friday, which shows long/short open interest positions by trader category through the previous Tuesday, shows that indeed the hedge funds began to short Comex gold futures in decent size and the bullion banks continued to aggressively cover their short positions.

We've watched the banks cover their shorts quite aggressively for the past few weeks, but when the short-covering by the banks continues, aided by additional hedge fund shorting, it has over the past couple of years signaled that the metals are bottoming and getting to move a lot higher.  You can find my analysis, with data links, here:  LINK

It might not happen quickly, and this next week or two is usually characterized by low-volume, directionless trading, but it is likely that gold and silver are now set up technically to move a lot higher.  As we all know, this technical set-up is reinforced by unprecedented fundamentals.

I've been doing my best to not gloat about the Denver Broncos' season, but it now looks like the Denver will likely emerge as the odds-favorite in Vegas to win the Super Bowl after that total thrashing San Francisco took last night (SF had been the prior odds favorite, Denver was #2).  Have a Merry Christmas/Happy Holiday. 

Thursday, December 20, 2012

In Case You're Wondering About Gold And Silver

There is no subtler, or surer means of overturning the existing basis of society than to debase the currency.  The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which only one man in a million is able to diagnose  - John Maynard Keynes, "The Economic Consequences of Peace"
 That quote right there is the foundation of Keynesian  economics. 

In response to several email inquiries, I wrote an explanation for the current price correction in gold and silver, since we might have expected that gold and silver would take off to the upside after the FOMC expanded its QE program.

The fact of the matter is that we saw very similar price action in mid-December last year, prior to a big rally in the entire precious metals/mining stock sector in January.  There's a lot of reasons for this and I don't want to pontificate about the illegal manipulation and corrupt nature of our financial system.  Instead, I wanted to focus on a little-known technical aspect of the paper trading on the Comex - tied in explicitly with said manipulation, as has been affirmed by Bart Chilton, one of the CFTC commissioners. 

I highly recommend reading this article.  You will understand an aspect of the gold and silver market that very few people are aware of and even fewer understand:  Comex Open Interest Liquidation Manipulation

Tuesday, December 18, 2012

The Gold/Silver Hit Is A Trap - This Too Shall Pass

Just because the future you expect and have prepared for hasn't yet materialized, don't think it won't. The very structure of the world's financial system has been fractured beyond repair, as have the foundations of the largest economies. The only thing holding it together is the fiat-currency system that was behind the fracturing in the first place and that is now being taken to an extreme and extraordinary level in an attempt to keep the whole shebang from literally collapsing.  - David Galland, Casey Research
Before I get started on my topic du jour, I wanted to link a stock investing article I wrote on Gold Resource Corporation (GORO) that was published on today:  LINK  I think GORO is a particularly attractive risk/return mining stock play right now and my write-up goes into detail on that view.

As for this latest take-down in the precious metals, it's more wash, rinse, repeat.  What makes this latest charade so transparent is the fact that the SPX has gone straight up for past two days and the dollar has tanked.  Sorry.  There's just no fundamental basis for this and it can't and won't last.

This action in gold and silver reminds me of the action in October 2008 when the sector was being mercilessly pounded with Comex paper.  Recall, that bottom in the metals preceded the banking system collapse and new era of QE and Government deficit "stimulus" spending.  I believe we're on the cusp of a lot more of that than the market is expecting and the big paper shorts in gold/silver are desperately trying to get the illegally large short positions covered before the market takes off again.

Think about the the Fiscal Cliff situation for a moment, outside of all of the rhetoric and media blow-hards.  They are going to come to an agreement sooner or later.  There's no way in hell that agreement possibly does not entail more deficit spending.  The Government spending deficit has already hit close $300 billion for the first two months of fiscal 2013:  LINK  That was as of the end of November, so the Government is well over $300 billion by now.

The economy, despite the b.s. being reported by homebuilders and the Government, is tanking - hard:

(click on chart to enlarge)

That chart shows the business "sentiment" of independent businesses in this country.  It's a literal cliff-dive in November and it's consistent with true unemployment, the real wage decline and real retail sales declines.  It is worth reading the accompanying commentary on Zerohedge:  LINK

My point here is that even if the Cliff agreement includes higher taxes, that won't raise more revenues to cover increases in deficit spending.  That means the Treasury is going to have to issue even more debt.  Who is going to buy that debt, given that the Fed has been buying close 100% of all new issuance over the last 18 months?  China and Japan are not going to make up the difference.  The debt ceiling is going to be raised significantly, if not entirely removed, and the Fed will have to print even more money in order to prevent the market from driving interest rates to the moon in order to attract new marginal buyers.

Bottom line:  Gold and silver are going a lot higher, as are the mining stocks.  Just like in late 2008.  In the context of big price corrections that we get in this sector, this one isn't close to being as severe as the one in 2008.   That one took silver down almost 60% from top to bottom.  This one so far has been 47% top to bottom for silver.  In the context of duration, this one so far isn't as long as the one in 2008, which lasted over 2 years before silver climbed over its 2008 peak.

BUT, the undisputed fact remains that, If you had bought silver at the top of the 2008 market ($21) and held til now ($32.20), you are still up 53% over 4 years.   That's worst case.  Unless the Fed and the Govt have decided to address the real deficit spending variables and will stop printing money and issuing debt, the smart money is buying the metals here and will be holding when the metals make another run at a new all-time high.

I'll leave off with an email inquiry to Jim Sinclair ( from a worried reader:

Dear Jim:  How should I read the negative pressure over gold and gold stocks? What’s going to change this negative scenario?

Dear reader:  This is capitulation everywhere. This event has been a manufactured market move since $1800, with clearly planned and executed intervention. The gold price take downs during low volume periods internationally is a known price moving only tactic. I simply shut off the machine because all the regular causes for the gold price will make themselves effective with time. A manufactured market event will not change the trend. Even the most professional can be reduced to sheeple by their emotions.  I refuse emotions and emotional people in a market context. To save yourself from all this that has happened and will continue to happen requires commitment and courage. You have it or you do not. Admit who you are and act accordingly. Like every mistake made by Westerners, what you see today is simply driving gold into Asian control.

Friday, December 14, 2012

Industrial Production, The Fiscal Cliff And Socialism

It has become crystal clear that Detroit automobile manufacturing employees who live in a home in which the mortgage is underwater are going to be in an economically advantageous position when the Fiscal Cliff is resolved.
The Federal Reserve released its monthly industrial production report for November today.  It came in at a "hot" up 1.1% vs. .3% expected.  As has been the pattern for almost all economic reports this year, October's number was revised lower from -.4% to -.7%.   It high highly probable that today's report will also be revised lower next month.  Here the actual report:   LINK

It is always important to analyze the "sub-index" components that go into producing the headline-grabbing overall index that has the financial media doing cartwheels.  Once you look at the "guts" of the report, you'll see that the overall number is of low quality and not sustainable without a lot more Government spending.  On a side note:  this is one reason I fully expect that one way or another a Fiscal Cliff agreement will be hatched to kick the spending deficit/debt accumulation catastrophe down the road some more.

If you pull up that report and scroll down, you'll find a section called "market groups."  There you'll find this note in reference to automotive products: "the index for automotive products rose 3.4 percent, its first increase in five months."  If you scan through the rest of the footnote, it's obvious that auto parts were the most significant factor in fueling the November over October gain in industrial production.  The November number that will be revised lower next month.  I say this because if you look at this chart posted by Zerohedge earlier this month, you'll see that General Motors has essentially "stuffed" its dealer inventories with a record amount of inventory in November:  LINK

Please understand that General Motors is controlled by the Government and therefore is incentivized to use taxpayer dollars to support sales at General Motors in order keep the massive union labor force employed.  In fact, the Government subsidizes every part of GM auto production from the factory floor to the end buyer.  GM subsidizes production by subsidizing sales.  It does this because the floor financing used by dealers to take delivery of unsold cars is provided by the old GMAC.  GMAC is owned by the Government.  A sale at GM is recorded when the car leaves the factory floor and goes to the dealer, not when the end user buys it.  After the sale is recorded, GM could give a crap what happens because it has received a transfer of money from  GMAC (Ally financial which is owned by the Treasury) and now the dealer is on the hook for unsold cars.

Then, the dealer uses floor financing from GMAC.  If the car never gets sold, GMAC  the Treasury  the Taxpayer is on the hook.  You see how this works?  The fact that there's record inventories of GM cars piled up on the dealer floors is likely the result of the Government triggering production in excess of end user demand.  This is why, in my view, a big part of the reason that the industrial production number looks so robust for November.  I only have the dealer inventory data for GM because that's all Zerohedge tracks and I don't have time to hunt down numbers for Chysler.  But  I would bet that there's a similar dynamic for Chrysler, which is 6% owned by the Government.

This is all part of the insidious socialism that is engulfing our system.  It's a massive transfer of taxpayer wealth that is going into the bank accounts of the upper management at GM and to the giant auto union at GM.  This is not an anti-Obama/Democrat or anti-union rant.  I'm just pulling back the thick cloud of gray smoke away from the headline data to show you what's going on.   Not only does the economy look stronger from a production standpoint, but monthly auto sales also appear to be a lot more robust.

There's a lot more issues with the data in this latest IP report that are highly problematic.  If you are interested you can surf around the site in the "About" section and see what I mean.  I did that and it would put you to sleep if I wrote about it here.

In addition to the massive wealth transfer going on in Detroit, I found a news item earlier this week that I did not see widely reported by the mainstream media.  It turns out that House Democrats are trying to attach legislation to the Fiscal Cliff agreement that would provide mortgage principal reductions for underwater homeowners:  LINK

Interestingly, the biggest impediment to Obama's implementing FNM/FRE mortgage principal reductions, Edward DeMarco, head of the Federal Housing Finance Agency, is about to get replaced by Obama:  LINK  Make no mistake about it, Obama wants this guy around about as much he wants his Portuguese water dog to take a dump in the Oval Office

I don't really know what to say about this other than if everyone wants socialism and a massive transfer of privately earned and taxed wealth to go to underwater homeowners and Detroit auto manufacturing executives and union workers, so be it. But regardless of how you want to view this issue from a public policy standpoint, if they implement widespread FNM/FRE mortgage principal reductions it will be a huge negative for economy and our entire system.

Wednesday, December 12, 2012

Here's Why Gold Is Going MUCH Higher In Price

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But 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 essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation  (Ben Bernanke on curing deflation,Before the National Economists Club, Washington, D.C., November 21, 2002 LINK)
You know, I've read that speech several times and today is the first time that I noticed that he prefaced that particular passage with "like gold."  Truly remarkable when you let that sink in.

We've seen today from one fundamental standpoint just why gold is going to go a lot higher in price, as it will become significantly more "scarce" in supply relative to the supply of fiat currency being printed up.

HOWEVER, largely unnoticed and distinctly not commented on or analyzed, was another key fundamental factor:  the enactment of the Basel III Accord.  I've written an exclusive article for which explains why Basel III will unequivocally mean much higher values for gold (and silver).  You can read that article here:

Gold will be de facto reasserted into the global financial system as a currency. This should add a new dimension to the ongoing bull market in gold and silver, as banks globally now have incentive to accumulate and hold gold as a valuable, liquid asset which can be leveraged as an operating asset.


Tuesday, December 11, 2012

Government Waste In Extremis

Just so everyone is clear, "in extremis" is a Latin phrase that essentially means "to the point of death."
Our Government is growing, spending and transferring private wealth to the point at which our system is nearing its death.  Just to be clear, I'm not referring directly to the tax policy debate or the so-called "class warfare" discussion.  My own view is that the tax system is so irrevocably convoluted that nothing short of a full "reset" will fix that problem.

What I'm referring to is the fact that the Government is taking taxpayer money and paying many of its employees an absurdly egregious amount of compensation.  Here's two examples that hit the news in the last 24 hours:  " $822,000 Worker Shows California Leads U.S. Pay Giveaway"  LINK  Pay for State-sponsored psychologists and school Administrators seems to be leading the way.  Psychologists? Give me a break.  I never signed up to pay for that.

We all know that including retirement benefits, the average pay per employee for Government workers is a little over $100k/year.  For now, all of that is guaranteed.  Contrast this with the average private sector all-in compensation which a little over $60k/yr, with nothing guaranteed.

But here's a fact that is even more outrageous:  the top 90 employees for Fannie Mae and Freddie Mac get paid an average of a little over $1 million/year LINK  That figure just blows my mind given that FNM/FRE exist only because of trillions in taxpayer subsidies.  I can guarantee you that at least 90% of those people making an average of $1 million per year could never in their wildest dreams make even 1/3 of that amount in the private sector.  No way.  I would bet the life of my dog on that.

This type of rampantly out of control Government waste could NEVER occur with a democratic capitalist system using a true gold-backed currency (as opposed to the defunct, phony Bretton Woods system).  Never.  This is why the Government will never revert to a real money currency until our system hits the wall.

The only thing to prevent our system from slamming into a wall is a huge amount of additional QE. There's an invisible depression going on beneath the surface.  48mm people on food stamps as of the end of September.  That's one in every 6.67 people.  If the Government/taxpayer wasn't putting food in their mouths, what would it be like in the streets?

A lot more QE is coming and so are much higher gold/silver prices.  Keep that in mind if you are irritated, as am I, by the blatant paper raid on the metals today.

Monday, December 10, 2012

More On Real Unemployment

Just walk into any Starbucks in any urban area after 11 a.m. and see who's using the free wifi -  a thoughtful, long-time friend of mine on the credibility of the Government's employment report
Although it gets mentioned in non-mainstream media sources of analysis, the ever-shrinking size of the U.S. labor force has become serial in nature, to the point at which this economic defect has become endemic to our system.  Huh?

Every month embedded in the Government employment report is a statistic called "civilian labor force participation rate."  This number is basically the number of people who are employed PLUS the number of people looking for a job divided by the population.  The result is the "labor force."  So the headline unemployment rate would be the number of people looking for a job divided by the size of the labor force. This number was reported to be 63.6% last Friday.  This is lowest it's been since 1981.

The headline unemployment rate every month is highly anticipated, scrutinized and discussed by everyone.  Part of the Fed's latest QE program is tied to this number.  It is a highly politically-charged number. But the headline unemployment rate is also as fictitious as Santa Clause. The reason for this is the insidious and misleading manipulation of the how "looking for work" is defined by the Government.

As it turns out, there is a huge pool of a potential job-seekers who have simply given up looking for a a job for one of several reasons.  For this reason the actual labor force is likely much larger, and thus the real unemployment rate is much larger.  John Williams in his Shadow Statistics report covers this topic exhaustively.  You can source it here:  His alternative unemployment rate is over 20%.

I found a short article which does a good job of describing the demographics of the "invisible" unemployed:
While it's true that the unemployment rate is falling, that doesn't include the millions of nonworking adults who aren't even looking for a job anymore. And hiring isn't strong enough to keep up with population growth.
Here's the LINK

One more data observation completely invalidates the Government's unemployment numbers:  over 607,000 Americans applied for food stamps in September, bringing the number of Americans using foodstamps to a record 47.7 million.   This number increased by over 1 million in August and September combined.  You can read more about this HERE

IF unemployment were truly falling - meaning that more people are really working every month as implied by the reported recent decline in the unemployment rate - then the use food stamps should be declining.  But more "invisible unemployed" become eligible for food stamps every month,  completely invalidating the Government's monthly employment report.  I find it to be exceedingly absurd that educated people in the form of market analysts actually discuss and analyze the employment report as if it is real...

I really hate to be right about something as much as I'm right that the economy is a significantly weaker than is being represented by manipulated Government economic reports, Wall Street analysts and the mainstream financial reporters.  It's tragic but it's the truth.  Our system is going to hit the wall sooner than many understand.  Until that happens expect a lot more "spin" from our political/business leaders and a lot more printed paper currency from the Fed.  The latter will translate directly into much higher prices for the precious metals and mining stocks.

Friday, December 7, 2012

Non-Farm Payroll Report - Seriously?

73% of all jobs "created in the last 5 months are Government jobs:  LINK
These are not GDP-producing jobs, as jobs created by the Government are a result of tax revenue generated by the economy:  In fact, it can be argued that every Government job created subtracts from the wealth of this country.

The Bureau of Labor Statistics should be re-named the Bureau of Laughable Statistics.  I wasn't surprised when the headline number was reported to be an increase in jobs during November of 146,000, well in excess of the forecast increase of 80,000.  But I was shocked by the reaction to the number by the cast of clowns on CNBC, who were in total disbelief.  I was shocked because typically CNBC hypes and promotes a good number and "spins" a bad number into a good number.  To me that is emblematic of the extreme degree of implausibility with the BLS jobs report now assumed by everyone.

Of course, as usual, it doesn't take much digging below the surface to find serious holes and inconsistencies:  BLS report  Right off the top, the BLS posts a disclaimer saying that Hurricane Sandy did not affect the sampling results.  Well, if that's the case, then why bother mentioning it other than in a footnote, like everything else?  The Government has qualified every other weak economic report released since the beginning of July as being affected by the hurricane.  This one isn't? LOL

The real shocker was the downward revision to October's reported headline number.  Originally coming in at 171,000, it was revised down to 138,000.  31,000 jobs disappeared with computer keystroke at the BLS.  Recall, very few analysts were not skeptical of the 171k reported and the BLS just confirmed why.  I would suggest that we will see a massive downward revision to the number released today when December's headline is reported next month.  Please note that the revisions are not typically reported in mainstream media news reports.

But I don't have to shoot holes in this report.  The Census Bureau released a report yesterday in which it measures the unemployment rate at 8.3% vs. today's BLS' reported 7.7%.  Furthermore, Gallup's index which measures the intentions of small businesses to hire in the next 12 months plunged to -4.  The matches the all-time low for this index, which was hit previously in November 2008.  You can see the details HERE

The truth is that we'll never get the truth out of the Government.   If you delve into the depths of the BLS employment report, even their own more comprehensive measurement of the level of unemployment in this country shows 14.4% unemployment.  The way that metric is calculated more closely resembles how the unemployment was calculated 30 years, before the real statistical manipulation of economic numbers started occurring.

Just one more point about this.  It won't be too long before the number of people receiving some form of Government support payment will outnumber the number of people paying for those payments (taxpayers).  The payees will outnumber the payers.  Make no mistake about it, as tragic and catastrophic as this is for our system, it is going to get worse.  I can guarantee you that it will mean more debt accumulation, more money printing/currency devaluation and much higher prices in store for precious metals.

Have a great weekend.

Thursday, December 6, 2012

Regarding Gold: Follow The Money

Before I address my topic du jour, I wanted to follow-up quickly on my post about the weakening economy earlier this week.  Gallup released a report that was picked up by Zerohedge which showed that unemployment mysteriously jumped higher than previously thought after the election.  You can read about it here:  LINK

Of course, Hurricane Sandy will be blamed for this, but I would suspect that Gallup knows a little more about constructing statistical studies than to make that sampling error.  More likely is lackluster holiday hiring and the release of temporary Government workers hired to help out with the election.  As for the likelihood that holiday employment was weaker than usual, it turns out that not only were Black Friday sales less than forecast, but post-Black Friday sales actually dropped over 3%:  LINK

The reader is free to draw his own conclusions, but it appears as if the data coming in now supports my thesis on the economy.

To transition this into my title topic, there is no question in my mind that the Fed is going to expand its newly-minted QE3 program.  This has been well-telegraphed, but I believe what is ultimately implemented over the next 6 months will exceed expectations, as printing money is the time-honored strategy of attempting to prevent economic depression AND to finance Government spending.

The best way to take advantage of this imminent further devaluation of the dollar is to move as much of your investable funds into physical gold and silver as you can.  Also, you can create rate of return leverage with this by investing in mining stocks (which are egregiously cheap right now).  To implement this strategy, you would be piggy-backing an investor class with the best look at "inside" information regarding the issues of money printing and economic health:  the world's Central Banks.   As chronicled by this report, Central Banks globally have purchased a record amount of over 500 tonnes of gold during 2012:  LINK

To put this in perspective, the world's annual production of gold is around 2500 tonnes, give or take a few tonnes.  This output, despite the rise in China's gold mining production, is in decline - some would say serious decline.  So if Central Banks are buying at least 20% of annual production (it is thought that China is actually buying a lot more gold than they care to report), and likely will increase that off-take in 2013, and if every other source of demand just stays constant, there's only one way the price of gold can go.  There will be plenty of other factors that will drive the price higher, but this is just the sheer supply/demand dynamic.

Given that this is the case, you have to ask yourself why the Central Banks are now hoarding gold.  To me the answer is obvious:   the entities that are in control of the money supply are taking advantage of this powerful position by buying the one asset, in advance, that will rise in value as the supply of printed money rises.  And that would only occur if they intend to print a lot more of it.

Please note that, as always, I advise against using paper ETFs in lieu of buying real physical gold.  Although beyond the scope of this commentary, ETFs are not the same thing as owning real gold for many reasons.  I plan on updating my research report on GLD sometll post it here when that happens.

Tuesday, December 4, 2012

The Economy Is Weaker Than Government Reports Show

Someone is going find out sooner or later that what they thought they were going to get, they're not going to get - Eric Sprott in reference to the massive and accelerating deficit in U.S. Government entitlement promises.
It's interesting to note that the above quote from Eric Sprott can also be applied to everyone invested in the various forms of paper gold/silver and who tragically believe that the custodian of the trusts and exchanges (Comex, LBMA) actually have the gold/silver in the amounts represented by the paper securities outstanding.

In fact, to tie that into my subject title, one could say that Americans are not getting the economy that the Government, and the Wall Street charlatans who own the Government, is representing through fraudulent, Orwellian data reporting.  But let's take a look under the hood...

I want to start off with a study reported yesterday that showed the net worth of American households hit a 43-year low:  "The median net worth of American households has dropped to a 43-year low as the lower and middle classes appear poorer and less stable than they have been since 1969"  LINK  You can read through the details and needless to say - so I'll say it anyway - I'm sure that news report failed to make most mainstream media outlets.

I'm sorry, but there's just no way in hell that the housing market can possibly recover with that fact about household net worth being the case.  I've been threatening a big update post on the housing market, and it will happen soon, but not only does that net worth report contradict the view popularly promoted by the mainstream that housing values are climbing again, but if the average American household net worth is declining, it would be impossible to forecast anything but a lot more downside for the housing market.  More later on that topic...

Yesterday the ISM manufacturing report was released.  It came in at 49.5, well below the 51.4 reading expected and the 51.7 reading and was the lowest reading since July 2009.  Note that when the index is below 50 it indicates economic contraction.  The actual production aspect of that number is skewed higher by the prices subcomponent, which was 55.

On Friday the Chicago Purchasing Managers index came in at 50.4, a slight miss of the expected 50.5.  HOWEVER, to sub-component readings make this report somewhat disastrous.  The prices paid index jumped up to 65 and the new orders index plunged to 45.3, the lowest reading since June 2009.  Both the ISM and the Chicago PMI reports reinforce the view that the economy is slipping into an inflationary recession mode.

Last week also the Government released its durable goods order report for October.  While it showed that  the September to October level was flat (unchanged), the revision for the September report was revised lower.  If you look at the numbers on a quarterly basis for 2012, they show quarter-to-quarter contraction for the first three quarters of 2012, before and after inflation is factored in.  This means that unit orders have been in decline for all of 2012, despite the bright picture of the economy being promoted in the mainstream media. 

Please note that durable goods are the "stuff" people buy to use in their homes that are supposed to last a long time.  If housing really is what it is supposed to be then the durable goods order metric should be increasing, not in decline.

One last note, the Treasury will hit the debt ceiling limit at it's bi-monthly bond auction next week.  Even assuming that Geithner once again taps into the various custodial pools of capital like Federal pension money and social security in order to keep the Government funded until Congress gets around to raising the debt ceiling limit again, it's very safe to assume that the Fed will have to significantly expand its money printing program in order to help fund the new flood of Government debt without driving up interest rates. 

Higher interest rates would be the final death nail in our system at this point...Needless to say, so once again I'll say it, this current manipulated price correction in the precious metals market is purely a paper-driven wash, rinse, repeat event.  Everyone who "gets it" should not be intimidated by price action and should take advantage of accumulating this with both hands.