Wednesday, September 29, 2010

Swirling Down The Currency Toilet Bowl

Stocks Mixed Amid Europe Worries- AP
Stocks are fluctuating in early trade Wednesday amid deepening worries about European countries' ability to cut their heavy debt loads.
Anti-austerity protests sweep across Europe- AP
Ireland under pressure to speed up budget plans- Reuters

It is amusing, and disturbing, that just as the CRIMEX pits were about to open this morning the news wires were lit up with stories about European debt worries. Strange that the European markets had been open for almost five hours prior, and there were few if any worries about European debt on the wires.

The cunning and deceit of the American financial news media at the behest of the Fed and US Treasury is appalling. No doubt yesterday's collapse in the Dollar, after some early morning heavy lifting by the Plunge Protection Team failed, scorched these crooks fannies as the Precious Metals soared to new highs yet again. The curtain has been pulled back on the US Financial System for the whole World to see. They are running as fast as they can lest they be crushed in the crash as Humpty Dumpty Dollar crumbles into the dustbin of failed fiat currencies.

So just as the US blames China for its fiscal failings, they now attack the European block [again] in the hopes of derailing the Euro and putting a bid under the US Dollar as a safe haven from sovereign debt default. LMFAO! The US Dollar is THE poster child for sovereign debt default. The Fed at the inglorious Fed meeting two weeks ago assured its status as just that...the lead pony in a currency race to the bottom of the fiat currency barrel. No nation on Earth is as determined to debase it's currency faster than the United States of America.

The Fed has gotten away with their "stealth quantitative easing" by fostering the impression that inflation and inflation expectations are benign. Unfortunately, rising commodity prices, particularly in food, tell an entirely different story. The Fed has actually stated that inflation is "too low" and they must work to raise it. The Fed has lost control of the Dollar, Gold, and the currency markets in general. Attack the Euro if you must, attack China at our nations peril Bumbling Ben, but don't expect anything other than financial disaster here on American shores. In time, Americans will be screaming for your incarceration, if not your head.

The World Monetary Earthquake
By Ben Davies, CEO of Hinde Capital
September 28 (King World News) - Tinker, Tailor, Soldier, Sailor, Rich Man, Poor Man, Beggar Man........Thief

Globally GDP has been anaemic since the crisis first arose in 2007. The inevitable conclusion of most countries today is that the best way to extricate themselves from the current mess is to shift effective demand away from imports onto domestically produced goods. The preferred method is competitive currency devaluations.

Unfortunately this is not possible for all, and leads to friction as countries effectively steal other nations output to bolster their own. Plato and Aristotle referred to this as 'overgrazing', the ‘tragedy of the commons’. Nothing changes. This always leads to heightened tensions and conditions of capital controls and other protectionist behaviour such as punitive tariffs and quotas on imports often prevail. Friedman's flat world aside - it is already happening.

To maintain the last decade of prosperity (illusion) countries are systematically hell bent on exporting themselves to economic health. This is a zero sum game. Not all countries can export at the same time by definition that the global balance of payments will not then balance. For one winner there is a loser. The implication on import prices is dramatic. Inflation is imported or exported depending on your view point around the world. Let's rephrase 'inflation' - global citizens will experience a rise in the value of goods due to creation of more money used to devalue their currency.

The pursuit of mercantilist traditions may help alleviate the collapse in output for some, and the ensuing rise in goods prices may help government reduce the value of their debts; but at what costs? Increased international tensions and let's not forget the internal social unrest that is accompanied by citizens whose wages have not kept abreast of these rising prices.

As the traditional English folk tune rhymes Tinker, Tailor, Soldier, Sailor, Rich Man, Poor Man, Beggar Man........Thief. Rich or poor, you beg from your neighbour there is no two ways about it in the world of current accounts - you are a thief.

It is politically more savoury to expropriate the output from another country, unfortunately this will be at the loss of the majority.

Within a single week 25 nations have deliberately slashed the values of their currencies. Nothing quite comparable with this has ever happened before in the history of the world. This world monetary earthquake will carry many lessons.

Henry Hazlitt 1948 wrote this in a book "From Bretton Woods to World Inflation", which predicted the inevitable collapse of this fixed exchange rate mechanism. It was a compilation of his editorials from both his time at the New York Times and Newsweek, which ridiculed the prevailing economic Keynesian thinking to great effect. A brilliant journalist, economists and liberal philosopher, this man intuitively understood the pernicious nature of the Bretton Woods fixed exchange rate arranged in 1944.

Murmurings of such 'beggar-thy-neighbour' currency devaluations have once again sprung up amongst the financial literati and rightly so. Better late than never. The truth be told is that we have been living in a highly unstable world even more so than under BW I. The dollar pegs, primarily the Asian renminbi dollar semi-fixed exchange rate, what most refer to as Bretton Woods II, have (arguably) been responsible for the financial friction we observe today.

The RMB and US dollar are constantly colliding into each other. The clashing of these two tectonic currency plates has just begun to accelerate at an alarming rate. Ironically the move to greater currency flexibility on the part of the RMB against the dollar stands ready to produce the almighty mother of seismic monetary events - the collapse of the fiat currency system. The implications for government bonds, equities and real assets are profound. Are we being overly sensational? We don't think so.

Gold is the final refuge against universal currency debasement[MUST READ]
By Ambrose Evans-Pritchard
States accounting for two-thirds of the global economy are either holding down their exchange rates by direct intervention or steering currencies lower in an attempt to shift problems on to somebody else, each with their own plausible justification. Nothing like this has been seen since the 1930s.

The latest Fed minutes are remarkable. They add a new doctrine, that a fresh monetary blitz – or QE2 – will be used to stop inflation falling much below 1.5pc. Surely the Fed has not become so reckless that it really aims to use emergency measures to create inflation, rather preventing deflation? This must be a cover-story. Ben Bernanke’s real purpose – as he aired in his November 2002 speech on deflation – is to weaken the dollar.

If so, he has succeeded. The Swiss franc smashed through parity last week as investors digested the message. But the swissie is an over-rated refuge. The franc cannot go much further without destabilizing Switzerland itself.

Gold has no such limits. It hit $1300 an ounce last week, still well shy of the $2,200-2,400 range reached in the late Medieval era of the 14th and 15th Centuries.

This is not to say that gold has any particular "intrinsic value"’. It is subject to supply and demand like everything else. It crashed after the gold discoveries of Spain’s Conquistadores in the New World, and slid further after finds in Australia and South Africa. It ultimately lost 90pc of its value – hitting rock-bottom a decade ago when central banks succumbed to fiat hubris and began to sell their bullion. Gold hit a millennium-low on the day that Gordon Brown auctioned the first tranche of Britain’s gold. It has risen five-fold since then.

We have a new world order where China and India are buying gold on every dip, where the West faces an ageing crisis, and where the sovereign states of the US, Japan, and most of Western Europe have public debt trajectories near or beyond the point of no return.

The managers of all four reserve currencies are playing fast and loose: the Fed is clipping the dollar; the Bank of England is clipping sterling; the European Central Bank is buying the bonds of EMU debtors to stave off insolvency, something it vowed never to do just months ago; and the Bank of Japan has just carried out two trillion yen of “unsterilized” intervention.

Of course, gold can go higher.

Shut Down the Fed
By Ambrose Evans-Pritchard
The dangers of tipping into a debt compound trap – as described by Irving Fisher in Debt-Deflation Theory of Great Depresssions in 1933 – outweigh the risk of an expanded money stock catching fire and setting off an inflation surge later. Debt deflation is a toxic process that can and does destroy societies as well as economies. You do not trifle with it.

But deliberately creating inflation “consistent” with the Fed’s mandate – implicitly to erode debt – is another matter. Nor can this be justified at this particular juncture. M3 has been leveling out. M2 has begun to rise briskly. The velocity of money has picked up. The M1 monetary mulitplier has jumped.

We have a very odd world. The IMF has doubled its global growth forecast to 4.5pc this year, and authorities everywhere have ruled out a serious risk of a double dip recession.

Yet at the same time the Bank of Japan has embarked on unsterilised currency intervention, which amounts to stimulus, and both the Fed and the Bank of England are signalling fresh QE.

You can’t have it both ways. If the US is not in deep trouble, the Fed should not be thinking of extra QE. It should step back and let the economy heal itself, if necessary enduring several years of poor growth to purge excess leverage.

Yes, U6 unemployment is 16.7pc. But as dissenters at the Minneapolis Fed remind us, you cannot solve a structural unemployment crisis with loose money.

Fed is trying to conjure away the hangover from the last binge (which Greenspan/Bernanke caused, let us not forget), as if to vindicate its prior claim that you can always clean up painlessly after asset bubbles.

Are the Chinese right? Are the Americans and the British now so decadent that they will refuse to take their punishment, opting to default on their debts by stealth?

James Turk - Big Money Continues Buying Dips
“There’s no doubt about it that the buying power that we have seen the past couple of months is still there waiting to buy the dips. This shows there is still a lot of money waiting on the sidelines to enter the market.”
September 23, 2010

“If the silver market can take out $21.34 on volume that will pull the money off the sidelines and ignite the explosion that we’ve been talking about. Every day we spend above $21 is positive. You are building a platform and it’s this kind of thing that is going to take silver a lot higher.”

“This is one of the times when silver is leading, so a higher silver price means good things for gold as well. Another positive for gold is the fact that there really is no overhead resistance, and this means it’s unchartered territory and smooth sailing to the upside.”

When asked about the gold/silver ratio Turk responded, “One interesting thing to look at longer-term Eric with regards to the gold silver ratio, is that a big breakout will occur when the ratio breaks 40 to 1. This goes back to 1988 when Buffett acquired his silver.”

“The ratio has been in this huge trading range from the mid 40’s to the low 80’s for twelve years. When we take out that level, investors should expect a move to at least 20 to 1 on the ratio. But again, that will be much later on in this bull market.”

The big money continues to enter these markets, it is no longer a time for amateurs. As we have said all along, continue to accumulate, but do not try to time these markets.
-Eric King

Surge in the Price of Gold: The Inner Workings of the International Gold Market
by Bob Chapman
There is no question that more and more buyers of gold and silver contracts are opting to take delivery in spite of being offered 25% to 30% premiums to roll or curtail their contracts. In time, due to the leverage, and the fact that sellers have little or no inventory, a two-tier market will develop. There would be two different prices, one for the paper gold play and the other for delivery. This has already been rejected in the market from time to time, as gold has gone into backwardation. In time we could see continual backwardation as gold for delivery goes to permanent premiums, of $50.00 to $100.00 an ounce. That also means non-delivery contracts could fall to a discount and perhaps not participate in the move to the upside in the way that physical contracts will. The sale of leveraged contracts, or naked sales, are really tantamount to fraud if not identified as such. Once no gold is available for delivery, and that is possible, the Comex and LBMA contracts could collapse. Then to be death with is the naked sellers of derivatives. This is what we believe GLD and SLV have been involved in and if they call for delivery they may well find out they cannot get delivery and that could end in failure for the ETFs. As we look down the road we can see some real problems looming. It should be noted that naked short sellers are playing a very dangerous game in the midst of a ten-year bull market in gold and silver. All the gold in the world is only valued at 1% of all assets and what is still in the ground only equals another 1%. Historically that figure has been higher than 20%. What do the naked shorts do when that gap begins to close? They will default of course putting more upward pressure on prices. Dealers are about to find out that gold is not a barbaric relic but the only real money. The game of creating unlimited paper money is coming to a close because people will stop accepting it, or as in Weimer Germany, spend it as quickly as possible creating hyperinflation. The foundation of the world’s financial system will prove to be bogus and irredeemable. That ends in bankruptcy leaving gold and silver as the mediums of exchange.

Eventually the Ponzi scheme will be exposed and you do not want to be left holding only dollar assets. People will then ask where are the regulators? They will then be told they are there to protect the government, not the investor. Anyone who has been paying any attention at all has known this for years. The CFTC may as well not even exist.

The reason for concern is that there simply is not enough gold and silver to satisfy buyers and thus we have a paper-market based on the premise that 98% of those participating in the gold and silver markets just want to gamble and have no intention of taking delivery. Historically that has been true, but changes are taking place, because buyers fear if they want delivery they won’t be able to get it. As a result, more investors are demanding delivery, in spite of a 30% premium not to do so. The result is tremendous pressure on existing supplies for physical delivery. These conditions in time, will lead to the closure of Comex and the LBMA and cause a scandal at GLD and SLV. As we have seen previously on the LBMA the exchanges will appeal to government to bail them out. That has happened before in England as government delivered melt gold of about 88% purity, which could only have come from the US government. All of these events will happen. Just be patient and prepare yourself.

The same thing is occurring in the naked shorting of producing gold and silver mining companies, which has also spread to juniors and even exploration companies. We have been involved in these shares for over 50 years and we see very unusual things going on. You have all the important things going on that would make these shares move up strongly, but yet they hardly move to the upside. We ask how does a stock trade at $83.00 two and a half years ago with gold at $850.00 an ounce, trade today at $69.00 when gold is $1,300 an ounce. The only thing that can cause that is government naked shorting. As you know government can do anything it wants and that includes stealing from its citizens.

The media is totally unwilling to report the manipulative affects of government intervention in all of these precious metals and share markets. Never are the real fundamentals reported. The same is true regarding the general stock market and in the Forex market, both of which are in perfect head and shoulders formations on long-term charts. This is called lying by omission. This avoidance of the facts will come to an end as gold and silver bullion become harder to locate and prices move ever higher. The flight to quality, gold, silver and shares, has been underway for ten years, and nothing can stop it. That movement just ended its first phase and has three or more phases yet to be completed.

The gold and silver shares are an explosion waiting to happen. They have been suppressed for 2-1/2 years and as gold and silver finally break out higher you can anticipate a doubling of prices. They’ll be lots of short covering going on. The producing shares are now going to offer exponential earnings. It doesn’t cost a mine much more to produce gold whether it’s at $750 or $1,500 an ounce, so earnings can rise every quickly. Many mines are currently in that position. It should also be remembered that in the early 1930s in a deflationary environment gold and silver mining shares rose 500% and in the inflationary environment of 1978 to 1981, gold and silver shares appreciated an average 40 times more than gold bullion. In the latter there were ten times more mining companies then there are today.

By: Michael_J_Kosares
NOT - EVEN - CLOSE - With the number of financial bubbles inflating and bursting over the past decade and a half, it isn’t surprising that financial analysts have their “bubble-dar” honed and active. What is surprising though is the large number who have resoundingly dubbed the gold market as “the next big bubble.” But is it? Most gold owners reject claims that gold is in a bubble, but they might not be sure exactly why. The most concrete and convincing evidence against gold being in a bubble, though, is right in front of us.


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