Monday, June 29, 2009

Let The Countdown Begin

World Gold Council welcomes clarity regarding IMF gold sales
“World Gold Council welcomes the news that the US Congress has passed the Military Supplemental Bill thereby finalising the process allowing the IMF to sell 403.3 tonnes of gold in a manner that will have no impact on the smooth running of the international gold market.

“This process began with the Crockett Report in 2007, which recommended that the IMF adopt a new income model, including the establishment of an endowment, funded by the proceeds of limited and structured gold sales. More recently at the G-20 Leaders Summit in April of this year, heads of state proposed to use additional resources from the gold sales to provide an extra US $4 billion for poor and indebted countries over the next 2-3 years. This will not impact either the total level or the manner of the gold sales.

“The IMF has stated publicly that its gold sales should be coordinated with current and future Central Bank Gold Agreements (CBGA), whereby signatories have agreed to limit their gold sales to no more than 500 metric tons annually.

“Aram Shishmanian, CEO, World Gold Council, said: ‘We are pleased to see that the IMF’s plan to sell gold in a structured and non-disruptive manner has gone through due political process without problem, which is a credit to the responsible behaviour of all parties involved in the process. These sales will not constitute any net addition to the amount of gold the market is already expecting from official sector sources as a whole, and therefore we anticipate zero market impact.’”

BusinessWire, June 19, 2009.

This Summer May Prove Hot for Gold Prices Despite the Seasonal Tendencies
P. Radomski, Editor Sunshine Profits
I am often asked at this time whether it is a good idea to be in the precious metals market during the summer period known as the Summer Doldrums, in which demand for gold dries up temporarily while farmers in India plant crops and wait for the Monsoon rains. When they harvest in the early September, demand for gold picks up again as they are anxious to convert their profits into gold. After looking at the seasonal effects on gold one might think it prudent to wait through the summer in hopes of entering the market at lower prices. However, after considering important fundamental factors such as the increase in the money supply, it is clear that it is not a good idea to wait until summer’s end to enter a market that rather sooner than later is heading higher. Naturally, there will be pullbacks along the way, but the potential cost of being completely out of the market is too steep.

The Time Has Come
By Howard S. Katz
Well people, we are here. I am here. Gold is here.

But the question, dear reader, is are you here?

Gold is going to turn and punch through the $1000 barrier like it was not there. The U.S. dollar is going to drop like a stone. And yet, the vast majority of people are walking around in a daze. When I talk to ordinary Americans, they tell me that things are bad. This is their way of agreeing with the consensus media position of last fall which confuses falling prices with economic bad and buys the whole media line of that time.

You want to see bad? You are going to see bad. But it is not the bad of falling prices. By the time the current Administration is over, the average American will beg for falling prices.

The thing you have to keep firmly in mind is that there are many people in the world who want to steal your wealth. They go about it in many ways. The common thief is the most widely known, but he is not very successful. The police come and lock him away. As a result, more sophisticated methods of stealing are developed. For example, during the Middle Ages, the average person was reduced to being a serf. This meant that he had to go into the occupation of his father and was not allowed to quit his job. His feudal lord allowed him a bare subsistence and took the rest for himself. This was considered legal until, in the 17th century, the people rose up, established a democracy and voted in a Bill of Rights.

Ever since that time, a group of evil people have been trying to reestablish the hold which the medieval aristocracy had over their serfs. They have only been partially successful. Here in the United States, this group succeeded in obtaining the special privilege of printing money (i.e., of doing what would be called counterfeiting if anyone else did it). This was enacted on March 9, 1933 (The Emergency Banking Bill of 1933), the very first act of the new F.D.R. Administration. This gave the commercial bankers the privilege to create money. Savings banks got the privilege in the 1980s. And the banks’ big corporate loan customers benefit from the privilege indirectly (via lower interest rates). In a general sense, people who get special privileges from the government which enable them to steal your wealth are called a power structure. A power structure should be thought of as a watered down version of the medieval aristocracy. They are always dangerous. They want your wealth, and they want your freedom.

As noted, the power structure in the United States today operates by issuing paper money. They donate to both political parties and thereby get their agents installed as economic advisors. For example, Henry Paulson was the agent of Goldman Sachs, installed as the economic advisor to President Bush. It seems to run in the Bush family to know nothing about economics.

Greenspan, to curry favor with the power structure, eased credit from 6% in 2000 to 1% in 2003. At the same time he printed large amounts of money. This caused the housing bubble, which, for quite a while, made lots of money for Goldman Sachs and many other banks and Wall Street firms. It also made houses too expensive for the average American to afford. When there was finally a pause in the printing of money, housing prices collapsed. This caused what is called the sub-prime crisis and revealed Goldman Sachs and the other Wall Street houses for what they were – a collection of frauds.

It was the number one priority of Henry Paulson to prevent the collapse of his old buddies. They were in (a well deserved) crisis. So he ran to President Bush and shouted that the country was in crisis. Bush picked it up. The media picked it up. There was an atmosphere of hysteria created, and using this atmosphere of hysteria the power structure rammed through the bank bailout of October 2008.

This was called a taxpayer bailout of the banks, but there was no tax increase associated with it, and the media’s reference to it as a taxpayer bailout was another in a layer of lies. The average American did pay for the money given to the banks and Wall Street, but not via a tax increase. In fact, the money was created out of nothing by the Federal Reserve from Sept. to Dec. of last year as you can see in the above chart.

At the present time, it is better to use the monetary base as a measure of what is going on because the Federal Reserve is lying about the money supply. They are reporting the nation’s money supply as smaller than the monetary base when in fact the base is a part of the money supply.

Liar, liar, pants on fire.

So to sum up what is happening, the modern American power structure is trying to rob you. They squandered enormous amounts of wealth in the early years of this decade (because they are incompetent fools). They don’t want to pay for it. They want you to pay for it. That was the “crisis” of 2008. Their technique is to control both parties via campaign donations and get whoever is elected to steal from you for their benefit.

But their only method of stealing is via the paper money process. That is, they are counterfeiters, not conventional thieves. This is a weakness. It means that you can protect yourself from the depreciation of the (paper) currency by using gold as a store of value.

Mr. Obvious Makes His Case For Gold

Bernanke Grilling May Weaken Case for Expanded Powers
June 26 (Bloomberg) -- Chairman Ben S. Bernanke’s grilling by legislators over Federal Reserve conduct in Bank of America Corp.’s takeover of Merrill Lynch & Co. may reduce the odds the central bank will win new powers in a regulatory overhaul.

Bernanke failed to resolve some lawmakers’ questions on whether the Fed bullied executives and stepped over other regulators in the name of financial stability in a three-hour congressional hearing yesterday. Republicans asserted the Fed interfered with commercial decisions, and Democrats said it should have wrung more concessions in return for taxpayer aid.

Criticisms by members of both parties are likely to diminish support for the Obama administration’s plan to make the Fed the single agency responsible for the largest and most interconnected financial institutions. The proposal, part of a broad revamp of bank regulation, would give the Fed power to dictate standards on capital, liquidity and risk management.

“It may be more important for us to find another systemic risk regulator,” Representative Paul Kanjorski, a Pennsylvania Democrat and member of the House Oversight Committee where Bernanke appeared, said in a Bloomberg Television interview after the hearing. Congress should “hesitate to put any more authority on the back of the Federal Reserve,” he said.

Representative Darrell Issa, the ranking Republican on the House panel, said the Fed’s actions “ought to be a note of caution to those who want to dramatically increase its power and authority.”

Lawmakers Attack Fed For Being Too Secretive
WASHINGTON -(Dow Jones)- U.S. lawmakers, during a hearing Thursday on the central bank's role in Bank of America's acquisition of Merrill Lynch, attacked the Federal Reserve as a secret agency unworthy of new enhanced regulatory powers.

"It's time to yank the shroud off the Fed and shine some light on these events," said U.S. House Committee on Oversight and Government Reform Chairman Edolphus Towns, D-N.Y., who in an opening statement repeatedly described the Fed as being "shrouded in secrecy."

"I believe that before Congress acts on the president's financial services reform proposal, we need to have a thorough understanding of what caused the current financial crisis and how the federal government responded."

The heated congressional hearing got under way Thursday with Federal Reserve Chairman Ben Bernanke defending the central bank's role in negotiations with Bank of America (BAC) and with members of the House Government Reform committee expressing skepticism of the Fed's decisions.

Usually, the Fed chief goes to Capitol Hill to take questions on monetary policy and the economy. But the economy was barely touched on at Thursday's hearing.

Instead, lawmakers criticized the Fed as an agency that has too much power and yet too little transparency and questioned whether the Fed should become the uber regulator of the financial system envisioned by the Obama administration.

China Reiterates Call for New World Reserve Currency
June 26 (Bloomberg) -- China’s central bank renewed its call for a new global currency and said the International Monetary Fund should manage more of members’ foreign-exchange reserves, triggering a decline in the U.S. dollar.

“To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s delinked from sovereign nations,” the People’s Bank of China said in its 2008 review released today. The IMF should expand the functions of its unit of account, Special Drawing Rights, the report said.

The restatement of Governor Zhou Xiaochuan’s proposal in March added to speculation that China will diversify its currency reserves, the world’s largest at more than $1.95 trillion. Chinese investors, the biggest foreign owners of U.S. Treasuries, reduced holdings by $4.4 billion in April to $763.5 billion after Premier Wen Jiabao expressed concern about the value of dollar assets. That reduction came a month after China boosted its holdings by $23.7 billion to a record.

“Zhou Xiaochuan sees the current international financial system is flawed, putting too much emphasis on the dollar as a reserve currency,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong.

Richard Russell: Competitive devaluations to spur on gold
“Every nation wants to export. The obsession to export has resulted in filling the world with products, things, and merchandise of every kind. There’s a world overflow of products, and the result is deflation. Just too much stuff being manufactured. Buyers from importing nations can’t handle it all. The result is asset deflation.

“One reason why every nation wants to export is to lift employment. Nothing scares politicians like unemployment. Why? Because unemployed workers VOTE just the way employed workers do. The lesson - if you want high employment, learn to export. Exporting creates jobs. China and Asia learned that lesson, and they captured world export markets with the help of one valuable item - low wages - that along with no Social Security, no medical, no pensions, no anything, just plain low wages with none of the extras.

“Ooops, I left something out. What I left out was the big second advantage - cheap currency. Every nation, particularly the exporters, wants a cheap, competitive currency. The US is no exception. Obama tells the world that the dollar is a strong, hard currency, but the dollar has been weak. The administration’s policy is to talk a “hard dollar” but hope for a soft dollar.

“The result of all this is competitive devaluations. Nations no longer devalue their currencies against gold, they simply print oceans of their own currencies, and with that paper they buy dollars, hoping to raise the price of dollars against their own currencies. The result is a growing sea of fiat junk paper.

“The greater the world ocean of fiat paper, the higher gold goes. You see, gold is the secret, unstated world standard of money. Gold can’t be devalued or multiplied out of thin air. So as the various currencies of the world decline in relation to each other, gold stands alone. It can’t be cheapened or devalued or bankrupted. While the currencies of the world decline in purchasing power in relation to each other, they all decline in purchasing power against gold. In other words, as time passes, it requires more of each currency to purchase one ounce of gold.

“In the meantime, the US continues to spend outrageously, not only running up debts for the present but also for the children of the future. The US deficits and national debt will run into the multi-trillions in coming years.

“How will these monster debts ever be paid off? They’ll be paid off by devalued dollars, they’ll be paid off by additional borrowing, they’ll be paid off by inflation, they’ll be paid off with higher taxes and probably a VAT tax, they’ll be handled by projecting them into the future for other administrations to struggle with.

“As they say in New York, ‘all right already, so what do we do about it?’.
“Short and medium term, you want dollars, as many of them as you can save. Long-term you want gold. Somewhere ahead gold will come into its own. I can’t time gold, but I can identify the time when gold is ready to ‘take off’. When gold climbs above 1,004 it will be the signal for the beginning of the third phase gold rush. What I’m saying is forget quick profits in gold, forget timing gold, just own some.

“The way the world is going, ‘gold will be the last man standing’. Gold will be wanted because unlike everything else, gold can not go bankrupt. Gold has no debt against it, gold is not the product of some nation’s central bank. Gold is pure intrinsic wealth. It needs no nation to guarantee it. Gold is outside the paper system.”

What Really Backs the U.S. Dollar?
What does a dollar or Federal Reserve note represent now that gold and silver no longer back any of the currency printed in the U.S.?

A dollar bill used to say “This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury or at any Federal Reserve Bank.” Look at a dollar bill today. It simply says; “This note is legal tender for all debts, public and private.” In other words, you can’t redeem it for “lawful money.”

Guess what folks? A dollar bill is not lawful money, but rather “legal tender.”

From the Treasury;

“Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything. Redeemable notes into gold ended in 1933 and silver in 1968. The notes have no value for themselves, but for what they will buy. In another sense, because they are legal tender, Federal Reserve notes are “backed” by all the goods and services in the economy.”

What the government, via the Treasury and the Federal Reserve, really did in 1971 was coerce
you to accept something (Federal Reserve notes) that used to be redeemable for gold and/or silver but now aren’t redeemable at all.

What the Treasury would have you believe is that GDP backs the dollar. GDP is defined as “The monetary value of all finished goods and services within a country’s borders in a specific time period It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.”

Thursday, June 25, 2009

IMF Gold Sales: Insignificant

China and IMF Gold Sales; The Real Story
China’s recent veiled threats towards the establishment have been taken to heart. As China announced increased gold reserves from 600 to 1,054 tonnes it was an obvious warning. Initially I thought it was a direct threat against the ocean of treasuries being issued, but I think I have a clearer answer now. China wants the IMF’s gold!

For years the IMF has “threatened” to sell their gold. The final approval had to come from the US since they have veto power. It finally came this past week. For the gold they will receive an insignificant amount of money in today’s terms of $13 billion in paper, sorry I mean bits, or computer digits or whatever you want to call them, which can literally be created in the blink of an eye. The 400 tons of gold being traded for this instant gratification would take a full two months of production from every gold mine in the world to produce. Producing gold is quite a lot more labor intensive and thus gold’s worth is, or should be, much greater.

It became clear to me this morning that the threats by China were threats that they’d better push through the sale of the IMF’s gold or else. Unless you’ve been living on the moon lately, and possibly even then, you’ve noticed the tantamount battle taking place in gold. It coincided with the Chinese announcing gold reserve increases twice and looking back it’s clear to me the threat was either sell me the gold, or I will take gold up and over $1,000 which would have brought in the momentum traders furthering the rally.

The establishment hasn’t wanted and on many days have restrained gold from moving towards it’s fair value. But recently they were losing the battle, and I surmise, succumbed in part by approving the IMF sale. A high gold price is not what they want and they will do everything in their power to slow the inevitable rise. Please see the facts which are all public record that GATA has amassed over the years for much more detailed information.

Other than China “forcing” the IMF to sell them their gold, allowing China to dump some of their US dollars, what is really exciting to me about the sale is that it’s not really hurting gold. Sure, it’s down a bit and just below the 50 day moving average which could certainly knock it down some more, but really it’s holding up well and ultimately, nothing but another of the hundreds of gifts, by way of lower prices, to those who take advantage.

In one fell swoop, China profoundly alters gold market synergy
When China recently expressed its interest in purchasing $80 billion in gold (about 2600 tonnes), it profoundly altered the gold market's long-standing synergy in three significant ways:

First, it used to be that the threat of central bank gold sales would damage market sentiment. Now the threat of significant sales has been met with the threat of significant purchases.

Second, by becoming gold's most prominent champion, China mounts an aggressive defense of its domestic gold mining industry, and by proxy the rest of the industry as well.

Third, by elevating gold to prominence in its national reserves, China lays the groundwork for the yuan's future use as a prominent reserve currency.

In one fell swoop China has done much to alter the standing gold market synergy. When Congressman Mark Kirk announced China's desire to purchase gold during an interview with Fox News' Greta van Sustern, he noted "across across the board - in private - substantial, continuing and rising concern." Chinese leaders, he added, were sharply critical in private of the US Federal Reserve's policy of "quantitative easing," the modern equivalent of printing money. Kirk went on to say that rising concerns about the dollar and anticipated inflation had prompted China to: "[fund] a second strategic petroleum reserve and they plan to buy $80 billion worth of gold. . . Both of those investments only make sense if you expect significant dollar inflation."

In the years to come, China will continue to steadily build its gold reserves through domestic production. It will also attempt to purchase whatever gold it can on the world market through official sector purchases or whatever additional means it finds at its disposal. In the process it will become the fire-breathing dragon in the gold market's living room - ubiquitous and formidable, a presence that cannot be ignored. At the same time, it will find itself in stiff competition for the available physical gold with an international public which harbors the very same concerns for their own portfolios that Chinese officials expressed to Representative Kirk. Few among gold's growing legions would disagree with China's logic, or its now publicly-voiced desire to hedge a potentially disastrous collapse of the dollar.

Guess Who is Pushing Gold Lower?
Trading in the gold and silver markets is frequently opaque, meaning that much of the activity occurs without being public knowledge. As a result, inside knowledge can often be used profitably by short-term traders who detect which way the market is headed before it actually goes there. The most profitable information tends to be the kind that cannot be easily double-checked because, by the time it can be verified, so many other parties are in on the story and have already placed their trades.

In consequence, traders learn which unverifiable sources tend to be accurate over the long haul. Bill Murphy, the chairman of the Gold Anti-Trust Action Committee (GATA) is a veteran commodity trader who receives all kinds of inside tips as to what is really happening. He has enough experience that he can sort out the real from the imaginary stories with a high degree of accuracy. When Bill Murphy has something to say, I pay attention.

In his daily subscription commentary last Wednesday, he revealed, "Early this morning I received a phone call from someone in the gold industry whom I have met previously. He has a friend at the Chicago Mercantile Exchange, which is affiliated with the Comex. This 'friend' has been at the Merc for 35 years and is a pro's pro, having been around the trading block a few times."

"He told my source on Friday [June 12] that the U.S. government told Goldman Sachs on Thursday afternoon to take the price of gold down. Note the Thursday evening MIDAS (Murphy's) comments after gold closed at $960.70 during the Comex trading hours ...

"All of that AND THE GOLD CARTEL HAS THE AUDACITY TO TAKE GOLD DOWN $6 ON NOTHING in the Access Market. If you want to appreciate just how important GOLD is, please take in the above comments. Gold SHOULD HAVE upticked $4 in the Access Market, not downticked ...

"The takedown in the Access Market was a prelude for Friday when Goldman orchestrated a further hit to $939.50, or down $21.40 from the Thursday Comex close, with more selling to come on Monday."

The headlines that were reported referred to the U.S. dollar getting stronger and to oil prices falling, and that was why the prices of gold and silver declined. Well, from the time that gold touched $990 two weeks ago, the value of the U.S. dollar index has increased from 79.5 to 80.5. During the past two weeks, through Monday's Comex close, the price of gold has fallen about 7 percent, entirely out of proportion to being a response to a stronger dollar. At the same time, through Monday's Comex close, silver had fallen more than 15 percent from its peak two weeks earlier.

Actually the current headlines crediting a strong dollar causing the price of gold to decline are contradicted by recent history. When the price of gold topped $1,000 in February, the U.S. dollar index was 87.5. As the dollar index is now lower than 87.5, that theory would indicate that the price of gold should be even higher over $1,000 today.

It has become more obvious that the prices of gold and silver do not trade either in conjunction with or opposite to changes in the stock market indices, U.S. dollar index, the price of oil, long-term U.S. Treasury debt interest rates, or other financial statistics. Rather, for more than the past decade, the most important factor has been whether there was active price suppression activity.

And some still try to deny that Fed helps rig gold market
WASHINGTON -- The Federal Reserve sought to hide its extensive involvement in Bank of America Corp.'s acquisition of Merrill Lynch as Merrill's financial condition worsened, the top Republican on the House Oversight and Government Reform Committee said on Wednesday.

"The committee has already learned that Ben Bernanke and the Federal Reserve made inappropriate threats to fire Bank of America management unless they went ahead with the 'shotgun wedding' that was the Merrill Lynch acquisition.

"The Federal Reserve also engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies," Rep. Darrell Issa said in a statement released to Reuters.

The committee has obtained a number of emails and documents from the Fed about its behind-the-scenes role in the merger, which was quickly brokered late in 2008, according to sources familiar with documents.

The sources said the documents showed the Fed tried to keep secret information about the Bank of America deal from the Office of Comptroller of the Currency, the North Carolina-based bank's direct regulator, and from the Securities and Exchange Commission, according to the sources, who declined to be identified because they were not authorized to speak publicly on the matter.

That behavior "raises important questions" about whether the Fed can work collaboratively with other regulators and should gain additional power, as proposed in the Obama administration's financial regulation plan, the sources said.

Wednesday, June 24, 2009

No Doubt

“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity. Both bring a permanent ruin. But both are the refuge of political and economic opportunists.”
- Ernest Hemingway.

I am sitting here this morning on pins and needles just waiting to hear what brilliant ideas the Fed has come up with this month to push our nation further into the Greater Depression. No doubt the Fed will say little that will be interpreted to say a lot by the ever over analyzing financial news media. No doubt the financial news media will find a way to peel back the shroud of bullshit that covers every statement by the Fed, and uncover yet another bed of "green shoots of recovery". Oh look! More weeds!

IMF says dollar adjustment might be needed
PARIS, June 22 (Reuters) - An increase in exports is needed for a sustained recovery in the United States and this may require an adjustment in the value of the U.S. dollar, IMF chief economist Olivier Blanchard said on Monday.

'For the US, it is absolutely no question that a sustained recovery has to come from a large increase in exports, that may not be very easy to do. This may require fairly substantial adjustments in the dollar,' he told a conference.

The Obama knows this. Bumbling Ben Bernake knows this. The little rat like fellow that runs the US Treasury knows this. The Gold market knows this. The Chinese know this all to well. Damn it, the whole world knows this, and refuses to admit it. Refuse to admit the truth, and you're living a lie. America is living a lie, a VERY BIG LIE.

America is broke. Busted. Bankrupt. In case you lost track:

The U.S. will sell $3.25 trillion of debt in the fiscal year ending Sept. 30, according to primary dealer Goldman Sachs Group Inc. Obama has pushed the nation’s marketable debt to an unprecedented $6.45 trillion. The budget deficit is projected to increase to $1.85 trillion in the year ending Sept. 30, equivalent to 13 percent of the nation’s economy, according to the nonpartisan Congressional Budget Office.

The Treasury Department will conduct a record $104 billion worth of bond auctions this week, part of its Orwellian efforts to finance a rescue of the world's largest economy and destroy its future.

The sales will exceed the previous record of $101 billion set in auctions that took place in the last week of April and consist of two-year, five-year and seven-year securities. That record was matched by another $101 billion week in May.

The Treasury's include $40 billion in 2-year notes on Tuesday, $37 billion 5-year notes on Wednesday and $27 billion in 7-year notes on June 25.

The shocking truth is that in 2002, following the 9/11 disaster, the entire US budget deficit was ONLY $165 BILLION.

Where is the outrage? When will America wake up to the truth and REACT!?

The real lie we are forced to endure is the price of Gold. If there is a single market in the world that could stand a huge dose of truth, it is the Precious Metals Markets. The bullshit that is allowed to take place at the CRIMEX by "the regulators" is abhorrent. Oh sure Mr. President, more regulation will solve everything! Why not begin with ENFORCING the laws that are ALREADY on the books!?

Monday's Gold and Silver performance is yet one more example of "government regulators" sleeping on the job, with permission of their government bosses, of course. The desperation by the US Government to suppress the price of Gold is not only now visible to the entire world investment community, it is becoming increasingly intolerable. Those that deny the NY COMEX metals markets are rigged are complicit in the crime.

Ed Steer at Contrarian Profits expounds on my assertion yesterday that Gold was NOT down because of a rising Dollar on Monday:

Monday’s [and this year's] gold price action [and the media comments about it] were nicely summed up by Bill Murphy over at yesterday. Here’s what he had to say…”Today, [the press] are all reporting again that ‘gold is down on strong dollar’, even though from the time gold hit $990 two weeks ago the dollar has done nothing more than rise from 79.5 to 80.5, a whopping 1% change compared to the $70 decline in gold and $2.50 drop in silver thanks to massive COMEX shorting. Apparently, the deflation scapegoat is back in fashion for describing gold’s decline.

“Even more comical is realizing that when gold hit $1,007 in February, just four months ago, the dollar was 87.5, or seven points HIGHER than today, and the Dow was 7,200, or 1,500 points LOWER than today. Back then, 10-year Treasury yields were below 3%, compared to closer to 3.75% today, and ‘Dr. Copper’ was $1.50 compared to $2.20 today! Thus, that gold SURGE clearly coincided with real ‘deflation fears’, as opposed to today when the press reports that gold is now plunging due to ‘deflation fears.’

“Not only that, when gold hit $1,030 in March 2008, the dollar was 77, or three points LOWER than today, while the Dow was 12,500, or 4,000 points higher today.”

If you’re confused…you shouldn’t be. The gold price is not joined at the hip with the US$ or the Dow…it goes up or down depending on who is long or short on the Comex…nothing else. Did the gold or silver price go down because of the US$ on Monday? No it didn’t. It [and silver] only declined because the price was engineered lower. Does the gold chart above look like normal market action…moving with the US$ tick for tick…or does it look like someone’s dicking with it? You have to be deaf, dumb, blind and/or stupid not to recognize price management staring you in the face yesterday.”

This afternoon the wizards that ensconce themselves behind the curtain will hand forth the much over anticipated "statement" regarding interest rates. The financial news media will fawn all over it and then "tell us what it means". I'll tell you what it means right now, hours before it is released and dissected by these media buffoons. It means "America, you're f***ed!"

The Fed in reality no longer controls interest rates. The country's debt holders do. The Fed's ONLY hope of slowing the rise in interest rates is to continue purchasing the nations debt themselves. And it is only hope. To date Fed purchases have failed to stop interest rates from rising. If the Fed comes out and says they will slow purchases of Treasuries because they fear inflation, bond prices will fall on the "fear of inflation". If the Fed comes out and says they will increase purchases of Treasuries, bond prices may rise, temporarily. But by purchasing even more Treasuries, the Fed only raises higher expectations of inflation, and bond prices will plummet. The Fed does not have enough money to prevent rising interest rates no matter how fast they print the money. For the Fed, there is NO WAY OUT. Well, I suppose they could kill themselves...

Monday, June 22, 2009

Batter Up!

On the one hand it is amusing. On the other hand it is fitfully frustrating. In fact it is disgusting. The blatant attack on the Precious Metals today was as bold as they come. The bid for the Dollar today did not warrant such a reaction as was witnessed today. Why just last week, at similar Dollar levels, Gold traded in the 950's, and silver in the 15's. Clearly the Fed cannot tolerate a strong Gold market when they are "in session" planning the next stage of the Greater Depression.

At 5:20AM est this morning, just prior to the Asian Markets closing and rolling into the London Market, Gold was attacked for a $10 loss in the space of just ten minutes. It was then shaken for another $5 as the NY CRIMEX opened for its hoodlum activities.

As noted two weeks ago, if Gold lost 942 it would be open to a test of support at 918. Today Gold bottomed at 918. Action on the hourly chart suggests buyers lay waiting for Gold there. Whether or not legitimate buyers lay there or merely shorts covering their blossoming trades remains to be seen, but there was definite support at 918 today.

Outside of the World Bank's "announcement" that World GDP growth would be less than they had previously thought [shocking isn't it?] there was no significant fundamental reason to rush out and buy the US Dollar this morning. [Not that there is ever any reason to buy the Dollar these days] Of course we have seen this reaction before as Global Equity Markets crashed...the Dollar catches a bid. But I still don't believe it was the Dollar bid that brought Gold down this morning. As I noted above, Gold has been much higher with similar Dollar "values" just last week.

Oil brought the Precious Metals Markets down today imo. Oil is too foolishly thought of as a currency these days because it moves opposite the Dollar. It does so because it is a commodity whose sale is most often settled in US Dollars. Oil got beat with an ugly stick today. Of course then ALL commodities, yes even Gold and Silver, had to be taken to the woodshed as well.

I'll point the finger [or should I say "give the finger"] at Goldman Sachs. You can be certain they were adding to their out of control commodities derivatives this morning at the behest of their imperial masters at the Fed and Treasury. You can probably make book as well that profits from the covering of the Gold shorts over at Goldman and JPMorgan this morning will be used to buy Treasuries this week in the hopes of keeping the precious bid to cover ratios and yields in line to give the appearance of an unending demand for the USA's burgeoning pile of debt. What a pathetic country we live in. Free markets my ass.

Once again, those looking to purchase Precious Metals at a price should welcome these fire sales put on by the knuckleheads rigging these markets. Line up yer buy orders folks. The Dollar's back is against the wall of a falling 50 day moving average, The Fed's back is against the wall of an increasingly investigative Congress, and the US Treasury is...well, the US Treasury is bankrupt.

The Money Matrix - Who Owns the FED
by Jake Towne, the Champion of the Constitution
So, who owns the Federal Reserve? Well, it certainly is not the US government, as many would suppose. In fact, I have found that quite a few - including myself last year - who are roughly aware of how the FED works but believe that the owners of the FED is a secret. Well, it is not.

"As of March 2004, of the nation's approximately 7,700 commercial banks approximately 2,900 were members of the Federal Reserve Systema - approximately 2,000 national banks and 900 state banks. Member banks must subscribe to stock in their regional Federal Reserve Bank in an amount equal to 6 percent of their capital and surplus, half of which must be paid in while the other half is subject to call by the Board of Governors. The holding of this stock, however, does not carry with it the control and financial interest conveyed to holders of common stock in for-profit organizations. It is merely a legal obligation of Federal Reserve membership, and the stock may not be sold or pledged as collateral for loans. Member banks receive a 6 percent dividend annually on their stock, as specified by law, and vote for the Class A and Class B directors of the Reserve Bank. Stock in Federal Reserve Banks is not available for purchase by individuals or entities other than member banks."

So, the owners of the FED are simply other national and state banks. What is rather interesting is that this is no normal company stock! First, they are paid a perpetual annual dividend of 6% per the Federal Reserve Act of 1913 which is not a "law" in the technical sense that the FED implies. Second, apparently this "stock" is part of each member bank's balance sheet as only have is "paid in" to the FED and the "other half is subject to call" by the FED.

Why do the owners of the FED not matter?

Well, as stated, the member banks have no ownership or decision-making rights as the shareholders of a corporation would. Their sole privilege is to influence the selection of several of the Reserve Bank division's directors who in turn may have a chance to influence a rotating chair on the FOMC (Federal Open Market Committee) or appoint the Federal Advisory Council. As seen in the below diagram, this is not much power at all.

So, why does who owns the FED matter?

Well, no American citizen, nor the American government, nor any other non-bank entity or corporation for that matter, can purchase stock. The FED is truly a "bank of banks" ruled by a small oligarchy of prominent central bankers. Ben Bernanke is just the current ringleader paraded out to the public. Given the vast power of the FED, I can claim with confidence that the Federal Reserve is a banking cartel. It has a monopoly over the money supply and credit of the United States. It is at best an unconstitutional quasi-governmental entity setup by the Federal Reserve Act of 1913.

For the best estimate on the FED ownership please see below, note that the top 4 banks Bank of America, JP Morgan Chase, Citigroup, and Wells Fargo-Wachovia, control roughly 54% of the stock of the Federal Reserve Bank, and the top 10 banks, including Government Sachs, HSBC, and the Bank of New York, would control roughly 70% of the stock.

...stock ownership in the FED does not confer control over the FED, but it is just more information pointing at the entire immoral cartel. There is complete documentation on the FED's website that it has acted in secret in the past to suppress the price of gold, and plenty of evidence that the same is going on today. Even Ben Bernanke admitted the FED caused the Great Depression! Since 1990, the FED has been orchestrating the outright ROBBERY of the savings of the American people by STEALING from the dollar's purchasing power.

The FED cartel is the arch-enemy not just of the free market, but of every living adult and child on the planet. It must be destroyed and the money powers returned to We the People.

Not nationalized. Not just audited. Not just more regulated. Destroyed. This topic must be debated in not just the halls of Congress but across the land...

Thursday, June 18, 2009

There Is No -- "Way Out"

U.S. Dollar: the Good, the Bad and the Ugly
By: Axel G. Merk
This past weekend, finance ministers gave a pep talk for the dollar. They also assured the world that the focus is shifting from saving the world’s financial system from collapse to the “exit” strategy; German chancellor Merkel has been a leading voice in warning central banks that the current policies may lead to substantial inflation. Let us discuss the dynamics here briefly: a key driver of inflation is inflationary expectations – when inflation is a fear, employees will ask for higher wages; businesses will try to push for higher prices, amongst others. As a result, central banks seem to believe that printing money is no problem as long as the markets believe that central banks have an exit strategy; that central banks will mop up all the liquidity in time. To recap, why do central banks say they are working on an exit strategy? That’s what the market wants to hear. How likely is it that they are indeed going to get tough? In our assessment, it’s about as likely as a balanced budget from the U.S. administration.

We have had a lot of talk of “green shoots”, but once one looks deeper, most negative news one hears are facts, whereas most positive news appears to be subjective forecasts and expectations of policy makers. Dark clouds on the horizon include sharply rising mortgage rates (in progress); major trouble in the commercial real estate sector; a continued dislocation in the housing market where home prices cannot be sustained by income; a big wave of foreclosures yet to come as many of those who bought their houses at the peak of the market in 2007 are likely to see big challenges in the summer of 2010 as their mortgages begin to reset. In the banking sector, problems have been brushed away by easing accounting rules. In Europe, a catastrophe in Baltic countries may only be a matter of time; while the IMF and central banks around the world may ride to the rescue, does this sound like the beginning of the exit strategy? Not to us.

Add to that the amount of debt that needs to be raised by the U.S. government. According to our calculations, at least US$15 billion may need to be issued every single business day until the end of the year. This will require a substantial ramp up from the pace seen in recent weeks, a pace that saw bond prices plunge (long term interest rates rise) due to the increased supply of government bonds in the market. When considering that summer months tend to be slower months for governments to issue debt (it’s vacation time around the world), we believe long-term interest rates may have to rise substantially later this year to attract buyers. The U.S. government will be able to finance its deficits, the question will be at what cost. Interest rates are one issue; the other is whether government activities will crowd out private sector borrowers. Corporate America also needs to finance its operations, not just the government, and where is that money going to come from? What about all the other countries that are issuing record amounts of debt? Just ask Latvia – a recent government bond auction yielded zero bidders. But even established countries, say Ireland, have seen the cost of its borrowing surge.

That’s when the bad may turn to ugly: how will central banks, notably the Federal Reserve (Fed) in the U.S. react should interest rates soar? Will they allow it to happen as they currently posture? It looks to us that we risk a collapse of economic growth if the cost of financing soars. There is still too much leverage in the U.S. economy, at the consumer level in particular. At this stage, a broken system has been propped up; the housing market is seen as key to an economic recovery – and all that money printing will have been in vain if market forces overwhelm the Fed by pushing interest rates higher. Naturally, the Fed puts up a brave face. Ultimately, this may be a game of chicken where Fed talk aims to keep interest rates low. However, we believe the Fed may blink first, and increase its financing activities of the U.S. deficit; by printing the money to finance government debt, the Fed may jeopardize the U.S. dollar, in particular if the Fed, as we believe, will be “more efficient” at printing money than other central banks around the world.

Will events unfold as described here? We don’t know, but we believe the risk is real; and if investors agree this risk is real, they may want to consider doing something about it in their portfolio allocation. We have not exchanged our gold for Federal Reserves Notes.

De-Dollarization: Dismantling America’s Financial-Military Empire
by Prof. Michael Hudson
On the economic front there is no foreseeable way in which the United States can work off the $4 trillion it owes foreign governments, their central banks and the sovereign wealth funds set up to dispose of the global dollar glut. America has become a deadbeat – and indeed, a militarily aggressive one as it seeks to hold onto the unique power it once earned by economic means. The problem is how to constrain its behavior. Yu Yongding, a former Chinese central bank advisor now with China’s Academy of Sciences, suggested that US Treasury Secretary Tim Geithner be advised that the United States should “save” first and foremost by cutting back its military budget. “U.S. tax revenue is not likely to increase in the short term because of low economic growth, inflexible expenditures and the cost of ‘fighting two wars.’”6

At present it is foreign savings, not those of Americans that are financing the US budget deficit by buying most Treasury bonds. The effect is taxation without representation for foreign voters as to how the US Government uses their forced savings. It therefore is necessary for financial diplomats to broaden the scope of their policy-making beyond the private-sector marketplace. Exchange rates are determined by many factors besides “consumers wielding credit cards,” the usual euphemism that the US media cite for America’s balance-of-payments deficit. Since the 13th century, war has been a dominating factor in the balance of payments of leading nations – and of their national debts. Government bond financing consists mainly of war debts, as normal peacetime budgets tend to be balanced. This links the war budget directly to the balance of payments and exchange rates.

Foreign nations see themselves stuck with unpayable IOUs – under conditions where, if they move to stop the US free lunch, the dollar will plunge and their dollar holdings will fall in value relative to their own domestic currencies and other currencies. If China’s currency rises by 10% against the dollar, its central bank will show the equivalent of a $200 million loss on its $2 trillion of dollar holdings as denominated in yuan. This explains why, when bond ratings agencies talk of the US Treasury securities losing their AAA rating, they don’t mean that the government cannot simply print the paper dollars to “make good” on these bonds. They mean that dollars will depreciate in international value. And that is just what is now occurring. When Mr. Geithner put on his serious face and told an audience at Peking University in early June that he believed in a “strong dollar” and China’s US investments therefore were safe and sound, he was greeted with derisive laughter.7

Anticipation of a rise in China’s exchange rate provides an incentive for speculators to seek to borrow in dollars to buy renminbi and benefit from the appreciation. For China, the problem is that this speculative inflow would become a self-fulfilling prophecy by forcing up its currency. So the problem of international reserves is inherently linked to that of capital controls. Why should China see its profitable companies sold for yet more freely-created US dollars, which the central bank must use to buy low-yielding US Treasury bills or lose yet further money on Wall Street?

To avoid this quandary it is necessary to reverse the philosophy of open capital markets that the world has held ever since Bretton Woods in 1944. On the occasion of Mr. Geithner’s visit to China, “Zhou Xiaochuan, minister of the Peoples Bank of China, the country’s central bank, said pointedly that this was the first time since the semiannual talks began in 2006 that China needed to learn from American mistakes as well as its successes” when it came to deregulating capital markets and dismantling controls.8

An era therefore is coming to an end. In the face of continued US overspending, de-dollarization threatens to force countries to return to the kind of dual exchange rates common between World Wars I and II: one exchange rate for commodity trade, another for capital movements and investments, at least from dollar-area economies.

Even without capital controls, the nations meeting at Yekaterinburg are taking steps to avoid being the unwilling recipients of yet more dollars. Seeing that US global hegemony cannot continue without spending power that they themselves supply, governments are attempting to hasten what Chalmers Johnson has called “the sorrows of empire” in his book by that name – the bankruptcy of the US financial-military world order. If China, Russia and their non-aligned allies have their way, the United States will no longer live off the savings of others (in the form of its own recycled dollars) nor have the money for unlimited military expenditures and adventures.

US officials wanted to attend the Yekaterinburg meeting as observers. They were told No. It is a word that Americans will hear much more in the future.

Investors Are Ganging Up on the U.S. Dollar and Gold
By James West
What is the significance, you may wonder, of the Russian Finance Minister suggesting the reserve currency days of the U.S. dollar are surely numbered, followed the next day by a statement from his deputy contradicting him thoroughly?

Apparently a coincidence, Japan’s finance minister just happens to state publicly that same day that Japan has ‘full confidence” in the U.S. dollar.

Somebody, it would seem, is running around the international backstage putting the arm on government finance types to wax supportive of the U.S. dollar. As a result, we now have press headlines issued minute by minute that contradict each other completely.

“Dollar down on Russian comments,” reads one at 10:47 a.m.Tuesday. Two minutes later, “Dollar advances as Russia says no alternative to U.S. currency”.

One thing is clear. The U.S. dollar is in some serious international doubt, both as a reserve currency and as a sound currency. When the volatility of emotions runs the gamut from completely bullish to completely bearish within the same government, you know that stability is no longer a factor in the subject currency’s character.

Jobless benefit rolls post first dip since January
WASHINGTON (AP) -- On the surface, the government seemed to signal Thursday that more Americans are finding jobs: The number of people receiving unemployment aid fell for the first time since early January.

But that doesn't necessarily mean more companies are hiring. Fewer people are receiving jobless aid largely because more of them have exhausted their standard unemployment benefits, which typically last 26 weeks.

Government figures, in fact, show the proportion of recipients who used up their jobless benefits averaged 49 percent in May, a record.

And while many analysts expect the recession to end by late summer, they warn that unemployment will stay high into 2010.

"It is unlikely that new hiring has picked up in any meaningful fashion," Joshua Shapiro, chief economist with MFR Inc., a consulting firm, wrote in a note to clients.

Tuesday, June 16, 2009

Floundering In The Sea Of Red Ink

Brazil, Russia, India and China form bloc to challenge US dominance
With public hugs and backslaps among its leaders, a new political bloc was formed yesterday to challenge the global dominance of the United States.

The first summit of heads of state of the BRIC countries — Brazil, Russia, India and China — ended with a declaration calling for a “multipolar world order”, diplomatic code for a rejection of America’s position as the sole global superpower.

President Medvedev of Russia went further in a statement with his fellow leaders after the summit, saying that the BRIC countries wanted to “create the conditions for a fairer world order”. He described the meeting with President Lula da Silva of Brazil, the Indian Prime Minister, Manmohan Singh, and the Chinese President, Hu Jintao, as “an historic event”.

“We are committed to advance the reform of international financial institutions so as to reflect changes in the world economy. The emerging and developing economies must have a greater voice,” they said.

The declaration also satisfied a key Kremlin demand by calling for a “more diversified international monetary system”. President Medvedev is seeking to break the dominance of the US dollar in financial markets as the world’s leading reserve currency.

He favours the establishment of more regional reserve currencies, including the Russian rouble and the Chinese yuan, to prevent economic shocks. Mr Medvedev said: “The existing set of reserve currencies, including the US dollar, have failed to perform their functions.”

High Housing Starts Don't Reflect Reality
So my first thought was: there's got to be something wrong with this number . A 17 percent surge in housing starts didn't make a whole lot of sense to me at first, but after talking to my minions I'm now getting the picture.

First of all, the biggest part of the gain was in multi-family, up 61.7 percent month to month, but that's after falling 49 percent in April. Patrick Newport, an economist at HIS Global Insight, says the multi-family market is still in a "deep slump," despite the monthly jump. "Permits, which better gauge underlying conditions, fell 8.3 percent, the 11th consecutive monthly decline, to a record low of 110,000 units 9annual rate," says Newport. "The recent sharp decline in this market is related to financing. Some builders are overwhelmed with debt. Others cannot find funding to finance projects with positive net present values."

As for single family, Dan Oppenheim over at Credit Suisse tells me that "the bit of stabilization earlier this year (the end of buyer paralysis after the end of last year) led a few builders to get their plans set for more."

But analyst Ivy Zelman gave me a huge nugget: 50 percent of sales in May were on spec. She says we're seeing a lot of spec homes now because, "today's consumer wants to touch and feel the house." The positives are that cancellations are down, sales are better and there's less negative pricing, although discounts are still prevalent. "The patient was without a pulse in the fourth quarter," Zelman notes, "and now the patient's in ICU."

I'm not trying to be a bear here, just a pragmatist. The government and industry programs to ease foreclosures are not showing big successes. A lot of Alt-A borrowers are in big trouble and many won't qualify for any of the bailout programs. With interest rates in the mid 5's, refinancing isn't going to do much of anything for many borrowers. There is no sign of abatement in delinquencies, and while investors are in there, using old-fashioned cash to eat up inventories of distressed properties, there are plenty more foreclosures in the pipeline just waiting to hit the market.

U.S. Factory Production Falls; Capacity at Record Low
June 16 (Bloomberg) -- Industrial production in the U.S. fell in May for the 16th time in the last 17 months, reflecting declines in consumer goods and business equipment that signals the manufacturing slump remains broad-based.

Output at factories, mines and utilities decreased 1.1 percent last month, in line with forecasts, after falling a revised 0.7 percent in April, Federal Reserve data showed today in Washington. The amount of industrial capacity in use dropped to a record-low 68.3 percent.

The fallout from bankruptcies at Chrysler LLC and General Motors Corp. may ripple beyond auto-related industries in coming months. Without a rebound in manufacturing, any recovery from the worst economic slump in half a century will take longer to emerge.

“The rate of decline has slowed, but there are lots of problems that have yet to be cleaned up,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “We’re going to be bouncing along the bottom for a protracted period of time.”

Yep, more proof that Bumbling Ben Bernanke's second half recovery is going to be a real humdinger. Hey, great idea, we have a 10.5 month supply of homes on the market, let's build some more! I lost count of the headlines I saw today touting the 17.5% "increase" in new homes construction. LOL! 17.5% of next to nothing is still next to nothing, but it makes great headlines...even if they are grossly misleading.

Ben, you've got what's left of America's factories producing very little and the American consumer with very little to spend on what little the factories are producing. How do you get a "recovery" from that?

A new role as 'risk regulator' could reshape Fed
WASHINGTON (AP) -- The Obama administration's plan to revamp regulation and prevent any more crashes like those that felled AIG and Lehman Brothers includes a bold new idea: Empower the Federal Reserve to oversee the biggest financial players whose failure could threaten other institutions and the economy.

But some lawmakers and economists say making the Fed a "systemic risk regulator" would itself be a high-stakes risk that would distract from its core mission: reviving the economy.

They say the Fed shares blame for the financial crisis that erupted last fall. Along with other regulators, it failed to crack down on risky mortgages and lax lending standards that ignited the crisis.

Unless the Fed improved its oversight abilities, "giving the Fed more responsibility at this point is like a parent giving his son a bigger and faster car right after he crashed the family station wagon," said Mark Williams, professor of finance and economics at Boston University and a former Fed bank examiner.

Lack of Regulation Didn't Cause the Crisis and More Rules Won't Prevent the Next One
On Monday, Tim Geithner and Larry Summers penned an op-ed piece in the Washington Post entitled A New Financial Foundation. On Wednesday, President Obama is expected to put his full weight behind this vision of a new regulatory framework for Wall Street.

Before this discussion goes any further, Jeff Matthews of Ram Partners, wants you (and presumably policymakers) to remember this: "The epicenter of the financial crisis that almost brought the world to its knees was the regulated portion of the U.S. financial system -- in particular Fannie Mae and Freddie Mac, two of the most regulated entities ever created."
Furthermore, "every publicly traded bank that has gone out of business had financial statements signed by their CFOs and CEOs," the veteran money manager notes. Such assurances were prescribed by
Sarbanes Oxley, the legislation that emerged in the aftermath of the corporate scandals at Enron, WorldCom and others earlier this decade.

As discussed in the accompanying video, every bubble in history has been followed by regulatory attempts to prevent its repeat, and yet bubbles continue to be a regular occurrence in market-based capitalism.

Second-Half Recovery Is "Nonsensical": Economy Still Descending, Ritholtz Says
Wednesday's report of a 17% monthly rise in housing starts made for some dramatic headlines, but don't confuse that with an actual recovery, says Barry Ritholtz, CEO of Fusion IQ and author of Bailout Nation.

"Housing Starts did not ‘soar' as Bloomberg claimed; you soar high in the sky, and a move from ankle to knee level does not qualify," Ritholtz writes on his popular blog, The Big Picture. "This was not, as The WSJ asserted, a ‘Surge in Home Construction.' Rather, it was a bounce off of record lows."

Ritholtz's bigger point is that the free fall from September to March was so agonizing, it feels good to be in a "normal" recessionary environment, as he believes we're currently experiencing. Ritholtz compares the economy today to a skydiver right after the parachute opens - the fall is now controlled, but you're still descending.

Furthermore, the fund manager says hopes for a second-half recovery are "nonsensical" citing the continued pressure on U.S. consumers and lack of evidence of a business recovery, as evinced by today's capacity utilization data, the lowest on record going back to 1967.,%5EGSPC,SPY,DIA,QQQQ,%5ERUT,%5EIXIC?sec=topStories&pos=9&asset=&ccode

The Mental Nature of the Credit Crisis
By Bill Bonner, The Daily Reckoning
The rally may run through the summer; it may not.

Asked about the rally on Wall Street, Barron’s latest Roundtable panel had various views about how far and how fast it would take us. But all were sure of one thing: the worst is over. We will not go below the lows set this past March.

This recovery is for real, they believe…and so is the bull market on Wall Street.

Investors believe it too. Analysts believe it. Economists believe it.

And why not? The ‘Committee to Save the World,’ part II, is on the job. And here are two of the three committee members writing in the Washington Post. “We have nothing to fear but fear itself,” they would have written. But that line had already been taken:

Like all financial crises, the current crisis is a crisis of confidence and trust. Reassuring the American people that our financial system will be better controlled is critical to our economic recovery.

By restoring the public’s trust in our financial system, the administration’s reforms will allow the financial system to play its most important function: transforming the earnings and savings of workers into the loans that help families buy homes and cars, help parents send kids to college, and help entrepreneurs build their businesses.

Get it, dear reader? The slump has nothing to do with bad investments and bad businesses…or with too much debt…or with too many producers making too much stuff for too many people who can’t pay for it.

Instead, it’s all in our heads! And if we can make some ‘reforms’ that cause the public to think everything is all right, well…heck…everything WILL be all right.

Except that it’s not all right. You can pull as much wool over the public’s eyes as you want, GM still won’t be a going concern. Nor will any of the other problems go away. And until those problems are worked out, there won’t be enough earnings and savings to push the economy forward.

As for the feds’ confidence tricks, they only make the situation worse. If the public spends more money…it just goes even deeper in debt!

Gold and Silver held their respective support today, Gold around 928, and Silver 14. Both will need to pursue some follow thru to the upside tomorrow to get the CRIMEX monkey off their backs.

Gold Bulls must reassert themselves at 942 quickly, or risk further downside reaction towards support at 918. A move back through 950 may signal that a new interim low is established.

As is most often the case when the Precious Metals correct in price, Silver finds itself with the most work to do, and the bigger hole to dig out of. Silver Bulls must take back 14.60 to regain control of the market from the Hoods of the CRIMEX.

As was suggested yesterday, there are no fundmental improvements supporting a bid for the US Dollar. Nervous shorts are all that keep the Dollar's head above 80 at this point. The Sea Of Red Ink that the Dollar is floundering in will surely wash back over it shortly...

Monday, June 15, 2009

Talk Is Cheap

Looking for a bridge to buy?

If you believe Russian Finance Minister Alexei Kudrin has confidence in the US Dollar, I have a bridge to sell you.

If you believe that Federal Reserve Chairman Bumbling Ben Bernanke "will not monetize the US Debt", I have a bridge to sell you.

If you believe there is still Gold in Ft. Knox, I have a bridge to sell you.

If you believe, like International Monetary Fund Managing Director Dominique Strauss-Kahn, that the US Dollar is "correctly valued" by the markets and likely wouldn't be pressed lower in the near term, I have a bridge to sell you.

If you believe the BRIC Nations won't discuss alternative reserve currencies at their summit meeting in Yekaterinburg, Russia, on Tuesday, I have a bridge to sell you.

If you believe that today's "rally" in the Dollar is anything but nervous shorts covering their trades, I have a bridge to sell you.

I can't promise the bridge won't fall down soon after you purchase it, but you shouldn't be surprised if it does. The point is, today's "pop" in the Dollar will most likely be dismissed quickly. Much like the Dollars pop ten days ago on the news that job losses for the month of May were "less-than-expected". Yeah, that was some pop in the Dollar... The only sound you're going to hear from the Dollar going forward for the next few YEARS is the hiss hot air escaping from it.

It should come as no surprise that the Dollar "rallied" following another meeting of the bloated G8 finance ministers [aka wind bags]. It is no secret that the US Fed and Treasury want, and need, the Dollar lower, but they want it lower on their terms. It's called a "controlled descent", and is now the truth that saddles the US' "strong Dollar policy".

Jawboning delivers dollar gains
LONDON (MarketWatch) - U.S. Treasury Secretary Timothy Geithner appears to have won a respite for the U.S. dollar, economists said Monday, after various officials voiced confidence in the greenback following the weekend meeting of the Group of Eight finance ministers in Italy.

The most dramatic signal of support for the dollar came from Russian Finance Minister Alexei Kudrin on the sidelines of the G8 gathering in Lecce. Kudrin said the dollar's role as the world's main reserve currency wasn't likely to change any time soon.

"It is hard to say that in the next few years this system will change significantly," Kudrin said, according to news reports.

That marked a change of emphasis for Kudrin and other Russian officials. Russian and Chinese officials have this year repeatedly called for changes in the global financial system that would downgrade the dollar's role as the world's primary reserve currency.

Officials have said they fear massive U.S. borrowing will erode the value of the greenback and the value of their reserves. China is the largest holder of dollar reserves. Japan is second and Russia is third.

Meanwhile, International Monetary Fund Managing Director Dominique Strauss-Kahn told reporters that the dollar was "correctly valued" by the markets and likely wouldn't be pressed lower in the near term.

And just ahead of the G8 meeting, Japanese Finance Minister Kaoru Yosano told Bloomberg that the government's trust in U.S. Treasuries was "absolutely unshakeable."

On Sunday an aide to Russian President Dmitry Medvedev told reporters in Moscow that the meeting of leaders of Brazil, Russia, India and China -- the BRIC nations -- won't discuss alternative reserve currencies at their summit meeting in Yekaterinburg, Russia, on Tuesday, news reports said.

"It's a little bit interesting" that officials made a range of dollar-friendly comments after meeting with Geithner and other U.S. officials, said Daragh Maher, currency strategist at Calyon.

"There seems to be a concerted effort not to dollar bash," he said.

But economists questioned how much mileage dollar bulls can get from the comments.

After all, remarks underlining the dollar's medium-term role as the world's premier reserve currency don't necessarily contradict a long-term desire to reduce exposure to the greenback, Maher said.

But the pace of the dollar's recent decline may have spooked big holders of dollar reserves, prompting the change in emphasis, he said.

Talk is cheap, and actions speak louder than words. If you had an overwhelming pile of depreciating US Dollar assets wouldn't you "talk up the asset" publicly in hopes of dumping it at a higher price privately? Let's stay focused here. There is nothing "fundamentally" that suggests the US Dollar should rally here. Keeping the public's confidence is still job #1 at the Fed. Jawboning the Dollar is just a feeble attempt at buying it and the Fed some more time before the Day Of Reckoning arrives.

New York Region Manufacturing Shrinks at Faster Pace
June 15 (Bloomberg) -- Manufacturing in the New York region this month contracted at a faster pace as sales and inventories declined, showing the economy is still months away from a sustained recovery.

The Federal Reserve Bank of New York’s June general economic index fell to minus 9.4, less than forecast, from minus 4.6 the prior month, the bank said today. Readings below zero for the Empire State index signal manufacturing is shrinking.

U.S. credit card defaults rise to record in May
NEW YORK (Reuters) - U.S. credit card defaults rose to record highs in May, with a steep deterioration of Bank of America Corp's (BAC - News) lending portfolio, in another sign that consumers remain under severe stress.

"Chargeoffs went up to record highs," said Walter Todd, a portfolio manager at Greenwood Capital Associates, referring to the entire U.S. credit industry.

Credit card losses usually follow the trend of unemployment, which rose in May to a 26-year high of 9.4 percent and is expected to peak over 10 percent by the end of 2009.

If credit card losses across the industry surpass 10 percent this year, as analysts and bank executives expect, loan losses could top $70 billion.

U.S. sees $53.2 billion capital outflow in April
WASHINGTON (MarketWatch) -- U.S. net international capital flows dropped to negative $53.2 billion in April, the Treasury Department reported Monday. Foreign central banks bought $5.2 billion in U.S. assets on net, while the foreign private sector sold $58.4 billion. China reduced its holdings of U.S. Treasurys by $4.4 billion to $763.5 billion. Japan reduced its holdings by $800 million to $685.0 billion, while holdings in the Caribbean banking centers fell by $8.9 billion to $204.7 billion. Holdings in the U.K. rose by $24.6 billion to $152.8 billion

It's highly unlikely that the US Dollar is going to collapse overnight, but again...if you think the Dollar is about to embark on a sustained rally, I have a bridge to sell you.

As for our Precious Metals...Dollar up, Metals down. Nothing new there. And so what! We must tip our hats again to the Hoods of the CRIMEX. They've won this battle, but they continue to lose the war.

Admittedly, I was a bit too confident in my assesment of the Gold and Silver charts last Thursday. Gold spit the bit and Silver flat out choked on it. Nothing has changed however. I am confident corrections in both markets will be proven beneficial shortly.

Liar, Liar [excellent read]
By Howard S. Katz
The Federal Reserve is lying about the nation’s money supply (M1). The current figure for money supply is being given as $1.6 trillion. The actual number is $2.34 trillion. The reported number is equivalent to an increase of 16% over the past year. The actual number is equivalent to an increase of 70% over the past year. This compares with the nation’s high money supply increase of 16.9% in 1986.

The implications for gold are astounding!

My previous calculation for the price of gold was $3500/oz. And this was calculated as follows: We are now in an economic phenomenon I call the commodity pendulum. This means that, when the Fed creates money, it has an immediate (1-2 year) effect on consumer goods but a long term (10-20 year) effect on commodities. The commodity pendulum started in 1963 with the Kennedy tax cut and printing of money. Over the next 8 years, commodities did not go up and thus became undervalued in real terms. By 1971, commodities were very undervalued, and began a 9 year rise from 100 to 337 on the CRB index. This was the first upswing of the commodity pendulum, and during this time the rising commodity prices passed through into consumer prices. Thus for this period (1971-80) the Consumer Price Index rose faster than the money supply. Then came the second downswing in the pendulum (1980-1999), in which commodities got even more undervalued than in 1971. This was why Reagan and Bush, Sr. were able to print so much money with only a small effect on consumer prices. The decline in commodities was undercutting the rise in consumer prices and making it smaller. Now we are in the second upswing in the commodity pendulum. It started in 1999/2001 and I estimate that it will run for about 20 years.

To get a conservative estimate of the price of gold at the end of the second upswing of the commodity pendulum, I started with the price at the end of the first upswing ($875). I calculated that consumer prices had doubled from 1980-1999 and guestimated that it would double again on the second upswing (because that is what happened in the first upswing). This meant that prices at the end of the second upswing of the commodity pendulum should be (at least) 4 times what they were in 1980. Multiplying 4 x $875, we get $3500, and this was my original projection.

But it is now clear that this was far too conservative. Barack Obama has projected a budget deficit for the coming year of $1.8 trillion. (To be honest, it seems strange to me to be using the T-word.) There is something that is not understood about budget deficits. We are always told that this is bad because it is borrowing from the future and that our children will be responsible for our debts. This, however, is an earlier-day lie. No government in history has ever been able to borrow the money for any sizable spending program from the people. The government’s deficits are simply too big and would overwhelm the credit markets of the nation. What every government has done when it faces sizable deficits is to simply print the money. If America is facing a $1.8 trillion deficit later this year, then it will probably print (another) trillion dollars to finance this. And then, as a political reality, it will be impossible to significantly cut the deficit for the next year, and the year after, etc., etc., etc. In this way, our children do not get poorer in the future. We get poorer, here and now. But we get poorer by having our dollars worth less. We have a bigger quantity of dollars but a smaller quantity of goods.

This means printing of money (the Fed prints the money and then “lends” it to the Treasury) of $500 billion to $1 trillion addition to the money supply, each year for the next several years. A few years down the road we could easily be looking at a money supply of $4 trillion to $5 trillion.. This is 3-4 times the level of a year ago.

What then can we project for the gold price at the end of the second upswing of the commodity pendulum? It might make sense to take the original $3500 and multiply it by a factor of 4. This would give a gold price of $14,000.

Sunday, June 14, 2009

Stand Firm

International Forecaster
By: Bob Chapman
As we get closer to June Comex delivery there is great concern that gold delivery of physical contracts cannot be met due to what can be called naked shorting.

Commercials have sold gold they cannot deliver. It looks like the US government, which is behind these positions, will again have to call in help for delivery like they did recently from the ECB and Deutsche Bank. All of this, of course, is illegal, but your government has its own set of rules. What could end in a classic debacle are the June gold options if enough are in the money and are called for delivery. It is our guess that if this happens and the government doesn’t come up with the gold again, that the gold pit could collapse. What we will witness over the next two weeks could be a gold explosion, especially if gold were to breakout above $1,000. Massive demands for delivery could take place. The forces of darkness again attacked gold last week as well as the shares and both have rebounded. The elitists are unable to keep the gold price down for any period of time. If the Comex collapse doesn’t come this month it most certainly will come in September. This is why we use a long-term buy and hold strategy and buying each time there is a dip in prices. Government is terrified and has put up every roadblock imaginable to inhibit and retard delivery. In the course of all this the elitists who have a revolving door between Wall Street, Washington and the Fed refuse to fix the system and they continue to add massive debt to the system, which only makes the situation worse. The system has to be restructured – purged – via bankruptcy and an exchange of equity for debt. We know the elitists won’t do that. If they do their power will be broken. This is why those who understand the problem are taking delivery of gold and in the case of most small investors taking delivery of coins and bullion and buying gold and silver shares.

Both Germany, from the US, and Dubai from London, cannot get delivery of their gold. This is why Ms. Merkel, German Chancellor, spoke out on debt last week; to force delivery of their gold, which the US cannot deliver. The same is true in London just as it is on Comex. One day you will turn on the news in the morning and you will learn that gold has jumped $500 to $1,000 overnight. Get ready for it because those kinds of events are in our future.

John Embry Expects $1,500 Gold and Early Stage Hyperinflation by Year End
The Gold Report: Quite a bit's happened since the last time we spoke with you back in September of '08. Gold was $874 at that point, and then dropped considerably in Q4. It has come back in '09, trading in the range of $850 to $950. Is gold still tethered to the dollar?

John Embry: I don't know that it's tethered to the dollar per se. Basically, there's a major problem with the dollar. I believe it is absolutely fated to fall dramatically against everything, but more against real assets than against other currencies. When I look at the other currencies, they don't look very good either, particularly the Euro and the Japanese yen.

They're trying to create the impression that paper currency is still good; so they go out of their way to try to pound gold at every opportunity. A week ago, clearly gold was tethered to the dollar on the downside, but on the other hand, for the prior few weeks when the dollar was under enormous pressure, there was still restraint in the gold price. It went up, but it should have gone up a lot more. They put pressure on to keep it from going up too much, and with an opportunity for a stronger dollar, they knock gold down. It's been the same format for a long time. But we're getting close to the end of that.

TGR: Why's that? What's going to push it over?

JE: There's no question what's going to push it—the realization that the U.S. is broke.

TGR: Who doesn't realize that already?

JE: Well, 90% of the people don't. Ask the average citizen. They don't have a clue what's going on.

TGR: So we need the public to figure this out.

JE: Absolutely. The U.S. budget deficit is going to be 13% of GDP. That's unheard of for the world’s reserve currency. There's no way you get out of that easily.

TGR: But most people aren't in the market anyway, so why would their realization affect the price of gold?

JE: Oh, it's not them; it's the people with the money—the people in the Far East and the Middle East. They will just want out of currency and as quickly as possible.

TGR: Why aren't they buying gold now?

JE: They are. They've already started.

TGR: So why hasn't the price gone up?

JE: It has gone up. But the fact is that, with the paper gold market, if you look at the short positions that the commercials, that the bullion banks, which are the agents of the U.S. government are running, it's a complete fraud.

TGR: How so?

JE: Because they couldn't possibly deliver on their paper promises if they were called by the people on the other side of the trade. The gold isn't there to deliver. They've cleaned out most of the western central banks. So we're real close. I think gold will be $1,500 before the end of the year.

Dollar likely to extend drop on unimpressive US recovery data
The United States dollar is likely to extend last week's drop in the trading week ahead as economic data fails to convince investors the US economy is recovering fast enough to warrant demand for the greenback.

Despite a rally on Friday, this week's record auction of $65 billion (Dh238bn) of Treasury debt and burgeoning fears of inflation are also prompting investor caution on the dollar as they feel they are in uncharted waters regarding US fiscal policy.

Rhetoric about finding a new global reserve currency to challenge the greenback is another slight weight on the dollar before a meeting in Russia of Bric nations (Brazil, Russia, India and China).

The dollar got a one-day boost a week ago with the non-farm payrolls report for May showing sharply lower-than-expected job losses. But there was no follow through last week with the dollar losing 0.4 per cent against the yen and the euro climbing 0.3 per cent against the dollar on electronic trading platform EBS.

"The numbers, while they were somewhat stronger than expected, weren't really strong enough to be a game changer with respect to the US economic outlook," said Steven Englander, chief foreign exchange strategist at Barclays Capital. "It didn't change the view on risks of where monetary and fiscal policy was headed."

By Warren Bevan
The US Federal Reserve of all people is hiring lobbyists to counter skepticism in Congress about their growing power over the financial system. That’s great. Wine and dine them until they sell their souls and the taxpayers future. To make it even more comical the head lobbyist is a former head lobbyist for Enron...we all know how that one ended. I’ll try and be more optimistic. Maybe she learned something from her past failures. Nope, she would have found a new career path rather than continue to lobby for fraudulent organizations if she had. Sorry, I tried.

China has announced they have further increased their gold reserve by about 4.5 tons at the end of April to about 1,059 tons. This is significant in several ways. The more important reason being the continued increase in gold reserves is another shot across the bow of the US. They are very worried about their US paper assets and are signalling this to the world as a whole by announcing the increases in gold reserves.

China quietly accumulated gold for years without a peep. Now they are openly saying they are increasing gold reserves. If you know how the Chinese work, they never talk their book, so they can continue to buy at the lowest price. However they do talk their book as a warning. Rather than saying something outright, their culture likes to mask their threats. This is the biggest threat to date. The Chinese could unravel the gold market themselves and in turn bring down the US currency. I hope US authorities are paying attention and you are paying attention. Gold is the place to be since it always has and always will represent money, silver even more so. Mark my words, this is a threat equal to nuclear war. Chances of an all out war today are slim and would result in near total annihilation of the entire world. A monetary war is taking place and gold is at it’s centre.

A senior executive at the World Gold Counsel says that justification is warranted in central banks having up to a 40% to 50% weighting in gold of total reserves. This was said at a conference organized by ETF securities. The fact is that this is impossible. At $937.90 USD per oz all the gold in the world is worth roughly $1.646 quadrillion. But when you consider that all the privately held jewellery coin and bullion in the world accounts for 71% of the total that only leaves $476 trillion in USD terms, most of which is already held by central banks and ETF’s etc.

The fact is that the gold is encumbered. If even a few large countries increased their gold reserves that much it would drive the price to levels not imagined by anyone. It can’t happen. There simply is not much gold available in the world for sale today. The only way that would be possible is through an ETF which doesn’t actually hold gold. It’s bad enough every currency is fiat, now gold is becoming fiat as well.

El-Erian Says Summit Shows `Rebalancing' as BRICS Buy IMF Bonds
June 12 (Bloomberg) -- Leaders of Brazil, Russia, India and China will probably use their first summit next week to press the case that their 15 percent share of the world economy and 42 percent of global currency reserves should give them more clout.

For U.S. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke, that’s a warning. For investors, it may be an opportunity.

Brazil and Russia joined China this week in saying they would shift some $70 billion of reserves into multicurrency bonds issued by the International Monetary Fund. While the moves aren’t an effort to “topple the dollar,” according to Mark Mobius, executive chairman of Templeton Asset Management Ltd., they increase the relevance of the four largest emerging economies, which account for only 6 percent of the MSCI AC World Index.

“The rebalancing of relative economic power is not only alive but gaining momentum,” said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., adviser to the world’s largest bond fund. “Average investors need to make sure that they are not hostage to an outdated conventional wisdom that underexposes them to this phenomenon.”