Monday, February 1, 2010

Stick Another Feather In The Fundamental Cap Of Gold

Well! Would you look at that... Gold AND Silver are up today. All of the Precious Metals are up today. One can only wonder aloud why. The fundamentals for Gold and Silver are the same today as they were Friday, all of last week, and all of last month.


Perhaps investors got a chance to delve deeper into Friday's absurd GDP number. Perhaps investors came across that page 9 story about the Senate voting to raise the debt ceiling by $1.3 TRILLION and pushing our National Debt Bomb futher towards detonation. Or perhaps investors got a look at the President's 2011 Budget proposal:

Obama unveils $3.83T budget with massive deficits [original headline at 7AM est]
WASHINGTON (AP) -- President Barack Obama unveiled a multitrillion-dollar spending plan Monday, pledging an intensified effort to combat high unemployment and asking Congress to quickly approve new job-creation efforts that would boost the deficit to a record-breaking $1.56 trillion.

Obama's new budget blueprint preaches the need to make tough choices to restrain run-away deficits, but not before attacking what the administration sees as the more immediate challenge of lifting the country out of a deep recession that has cost 7.2 million jobs over the past two years.

The result is a budget plan that would give the country trillion-dollar-plus deficits for three consecutive years. Obama's new budget projects a spending increase of 5.7 percent for the current budget year and forecasts that spending would rise another 3 percent in 2011 to $3.83 trillion.

"Until America is back at work, my administration will not rest and this recovery will not be finished," Obama declared in his budget message.

The deficit for this year would surge to a record-breaking $1.56 trillion, topping last year's then-unprecedented $1.41 trillion gap, a number which had dwarfed the previous record of $454.8 billion set in 2008 under former President George W. Bush.

The administration is forecasting that deficits over the next decade will add an additional $8.5 trillion to the national debt, even if Congress adopts the administration's package of proposals to trim future deficits starting in 2011.

The deficit for this year would be 10.6 percent of the total economy, a figure unmatched since the country was emerging from World War II. The administration does not trim the deficit below 3.6 percent of GDP for any year in the next decade, failing to meet its goal of lowering the deficit to 3 percent of GDP by 2015.

[Note: The headline of this story was changed for the 4PM list of Top Stories to read "Obama unveils 2011 budget with $3.83T in spending". Spin Doctors in action...]

I guess there will be a lot of No Doze in the candy dishes at the White House for the balance of the Obama Experiment. It is amusing that his administration forcast deficits over the next decade at $8.5 TRILLION. Last year it forcast deficits over the next decade at $9 TRILLION. Boy, that is some deficit reduction Mr. President! It is just plain amusing that he even bothers to forcast the deficit for "the next decade" let alone the next three years. For one, that forcast assumes "economic growth will take hold" and completely ignores the effect rising interest rates will have on the deficit going forward as costs to service this massive debt bomb rise in the coming years.

Thank you Mr. President! This is a great excuse to dump the Dollar, and stick another feather in the fundamental cap of Gold.

Not to be out done by the President's 2011 Budget, the Treasury had a Debt Bomb memo of their own today:

Treasury Dept. projects $392B in 1Q borrowing
WASHINGTON – The Treasury Department says it expects to borrow $392 billion in the current quarter to help finance the largest annual budget deficit in history.

The projection is $86 billion lower than an estimate the department issued in November, when it expected to borrow $478 billion. The improvement is largely due to higher-than-expected repayments of about $90 billion in bailout funds by large banks.

The department also says it borrowed $260 billion in last year's fourth quarter, below an earlier estimate of $276 billion. Treasury expects to borrow $268 billion in the second quarter of this year.

The projections come the same day that President Barack Obama proposed a $3.83 trillion budget that forecast a record $1.56 trillion deficit for this year, an increase from the $1.41 trillion deficit in the 2009 budget year.

Federal government borrowing has soared in the aftermath of the 2008 financial crisis and the steep recession that followed, as tax revenues from individuals and corporations have plummeted amid the weak economy. Spending has also jumped as a result of the Bush administration's $700 billion bank bailout program and the Obama administration's $787 billion stimulus package.

This is a crock. The Treasury makes the claim that this amount of borrowing is "less than expected" because TARP money was paid back. Excuse me, but didn't the President say he was going to use the repaid TARP money for "jobs creation"? Sounds like that money is still spent to me? I guess it's how you do your accounting. Oh, I forgot. This is US Government accounting...

Thank you anyways Mr. Geithner! This is a great excuse to dump the Dollar, and stick another feather in the fundamental cap of Gold.

Watchdog: Bailouts created more risk in system
WASHINGTON – The government's response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future, an independent watchdog at the Treasury Department warned.

The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. The quarterly report to Congress was released Sunday.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Barofsky wrote.

Since Congress passed $700 billion financial bailout, the remaining institutions considered "too big to fail" have grown larger and failed to restrain the lavish pay for their executives, Barofsky wrote. He said the banks still have an incentive to take on risk because they know the government will save them rather than bring down the financial system.

Mr. Barofsky should immediately be rewarded "Time's Man Of The Year" award for 2010. This cat has got major cajones. He ain't Democrat, and he ain't Republican. This man is the TRUTH. Many have known, shared, and written about exactly what Mr Barofsky speaks. His report will now doubt be dismissed by the administration and Wall Street.

"C'mom! Hanky Panky Paulson, Little Timmy Geithner, Bumbling Ben Bernake together pulled us back from the "brink of a depression" with their genius and the TARP bailout. How can Mr Barofsky be so critical. He wasn't there. What does he know?"

He knows plenty and sees even more. Listen to this man, he wants to save the country from these crooks.

Thank you Mr. Barofsky! This is a great excuse to dump the Dollar, and stick another feather in the fundamental cap of Gold.

The Precarious State of Our Union
by Peter Schiff, Euro Pacific Capital
In this week's much anticipated State of the Union address, President Obama again demonstrated his poor understanding of the fundamental problems that confront our nation. By following the advice of the same people who helped guide our economy to the precipice of total collapse, Obama now threatens to push it over the edge.

Notwithstanding his well crafted lip service regarding future spending restraint, the essence of his current program is for more government spending and larger deficits. For all his talk about job creation, his policies will further burden those who might otherwise create those jobs with higher taxes and more regulation. While he did call for tax cuts for the middle class and offered what amounts to bailouts for those struggling to repay student loans, such cuts do nothing to promote growth in the near term and will add to the deficits in the long term.

The President spoke optimistically about the future, but in reality there is little evidence to support such an upbeat outlook. He began his speech by assuring us that the worst of the storm had passed. General Custer may have said something similar when the first wave of Indian attacks ebbed at Little Big Horn.

Over the past several weeks I have posted several essays regarding the fragility of global sovereign debt. As the central banks of the world have vacuumed up TRILLIONS of Dollars in toxic banking assets and dumped them in the laps of a debt burdened tax payer, they have set themselves up for collapse. Who's going to bail out the central banks? Who's going to bail out the Fed?

Dubai and Greece have only opened the discussion about sovereign debt collapse. The possibility is very real for the Bank of Japan and the Bank of England. Do not think for a minute that the US Fed can't go certainly can.

The Next Contagion [insightful read]
by Martin D. Weiss, Ph.D.
The next contagion is beginning to spread around the globe.

It is unexpected on Wall Street, misunderstood in Washington — and very dangerous.

It could sabotage the plans of the U.S. Treasury, the Federal Reserve, and many of their counterparts overseas.

It is …

The Collapse of Sovereign
Government Bonds

In the global competition for investor funds, U.S. Treasuries are typically viewed as the “least ugly.” So global investors have usually been willing to pay a relatively higher price for them, grudgingly accepting lower yields.

This helps explain why U.S. government bonds have not been among the first targets of the contagion. But that does not protect them from becoming one of the next targets.

Indeed …

The U.S. government suffers from the same, or worse, underlying disease as Greece, Portugal, or any other victim of the contagion — massive, out-of-control federal deficits. America’s red ink was $1.4 trillion last year and ANOTHER $1.4 trillion this year.

Washington has buried its head in the same mound of sand as Athens and Lisbon — grossly underestimating (a) the size of the deficit, (b) its potential impact on investor confidence, and (c) the speed by which its bond prices can fall.

Like his counterparts in Athens and Lisbon, President Obama ignored advisors who warned of a deficit disaster and has only just begun to seriously consider deficit-reduction measures. And yet he continues to avoid steps that can make a significant difference.

Sadly, although most advisors on the Obama team are now more conscious of the rising political tide against Washington bailouts and deficits, they not yet see the approaching tsunami arriving from Greece.

Money and Markets’ Mike Larson explains the situation this way:

“Imagine what would happen if Uncle Sam’s borrowing costs shot up like they have in Greece — by 60 percent! Imagine what that would mean for the cost of car loans, mortgages, and other products whose rates track Treasury yields! And imagine the impact on an economy still struggling to recover from the Great Recession! This is the next big story that few people are talking about.”

This is why making ten year deficit projections is pointless. Sovereign Debt default is a very REAL threat. Global as well as homegrown. Raising the debt ceiling does little to "inspire confidence" in the US' ability to pay it's debts. It goes a long ways towards inspiring doubt though. And it's another great reason to dump the Dollar and put another feather in the cap of Gold.

Gold and Silver rose smarly today off of recent lows. However, in light of the ever present CRIMEX shenanigans, we will not get too excited about this move yet.

Gold must close above 1105 for two days before we could possibly see a shift in momentum that favors the Bulls, and establish the recent lows as a bottom and a successful retest of December's lows.

Silver must close above 16.73 for two days before we could see pressure on the shorts to cover their illegal commodities position and establish 15.99 as the interim low. Silver broke below December's low of 16.73 decisively last week, but did so with some quite Bullish Divergence in it's RSI making this quick rebound an apparent retest of that low in December.

Both metals are buys just on fundamentals alone, but risk becomes more of a reward once Gold clears 1105 and Silver 16.73.

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