Tuesday, February 14, 2012

I'm thinking, "Boy, is Gold gonna fly!"

How can anybody believe a word that falls from this clowns mouth?

Timothy Geithner Calls Economics Moving Forward “Quite Good, Quite Sound” Before Senate Finance Committee
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Geeze Tim, care to rephrase that last comment?

Unadjusted January Retail Sales Post Biggest Sequential Plunge In History
BLS Bureau of Labor Statistics Census Bureau
The topic of BLS propaganda seasonal adjustments has been discussed extensively here especially in light of January's NFP beat. We'll leave it at that. However, we were rather surprised to note that the Census Bureau may have also ramped up its seasonal adjustment "fudge factoring" because when looking at the January headline retail sales data, which naturally was a smoothly continuous line on a Seasonally Adjusted basis, rising from $399.9 billion in December to $401.4 billion in January, something rather odd happened in the Unadjusted data set: the plunge from $459.8 billion in December to $361.4 billion in January, or -$98.5 billion in one month, was the biggest one month drop in retail sales in history. Now we won't say much on this topic, suffice to say that it would be far more useful if the BLS and Census Bureaus were to open up their models and explain in nuanced detail just what "old normal" adjustments they still incorporate into data sets. Because as many have already noted, seasonal adjustments used for data from 1980 to 2008 when "up" was the only allowed direction for everything, are completely irrelevant and misleading in the New Deleveraging Normal. Which reminds us: Zero Hedge will offer $10,000 to the first BLS employee to share with us the full and complete excel model set, including assumptions, data tables, and comprehensive output parameters that the agency uses to go from input A to output X. We hope that by spending that money we will finally do society a service and open up to everyone just how it is that the BLS adjusts its Non-Farm Payrolls data.
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The last thing I'm thinking of when I see this is, "How does this effect Obama's re-election chance?" 

I'm thinking, "Boy, is Gold gonna fly!"

"Uh, Marriner Eccles: We Have A Problem" - Obama Predicts He Will Breach Debt Ceiling Two Months Before Election

Submitted by Tyler Durden on 02/14/2012 - 11:19 Barack Obama Debt Ceiling None Peter Orszag Tim Geithner

In light of the epic fiasco from last August, when the US debt ceiling hike became a 2 month televized affair, culminating with the GOP caving, but not before the S&P downgraded the US (and in the process breaking the US stock market), Zero Hedge has long been analyzing the chronology of future debt breaches, as with the presidential election in November, what happens in the months and weeks ahead of it as pertains to the number one problem facing America - its lethal debt addiction - will be by far the biggest weakness of Obama's campaign. This is something we believe the GOP has finally understood, and they want a full replay of last August's insanity, to remind America just how broke (and broken) this country is. Yet it turns out all of our analyses have been for naught (if 100% correct). Because it is none other than President Barack Obama who has been kind enough to point out, that on September 30, 2012, or in just over 7 months, total US debt subject to the limit will be, wait for it, $16,333,900,000,000. Why is this an issue: because the final debt ceiling that Obama has been afforded with automatic Senatorial roll overs (even as Congress theatrically votes these down), is $16,394,000,000. In other words, with two months ahead of the election, the US will have a de minimis $60 billion in debt capacity. And since the implied burn rate is $133 billion/month this means that the United States will be in full blown debt ceiling hike chaos just as the final electoral debates take place. And one wonders why the GOP rushed to green light Obama an additional $160 billion in debt issuance. If indeed the $160 billion in new debt is added, the US may not even last to September before Tim Geithner is forced to start plundering G-fund and other retirement accounts. It also means that two months of America in a debt ceiling breach situation will deal a dramatic blow to Obama's reelection chances as the last thing the US population will want is a replay of last summer.

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As always...Dave in Denver nails it:

From Dave in Denver, The Golden Truth

But first, I wanted to unload on AAPL. AAPL has run up $74 billion in market cap since releasing its earnings a couple weeks ago. That's a 20% move. The stock has gone parabolic (and the media morons call gold an investment "bubble?"). The market cap of AAPL is now close to $470 billion. At first glance the earnings and cash flow are quite impressive. It has amassed a cash hoard of almost $100 billion. It's trading at 14x trailing earnings and a hefty 10x cash flow. That is a very pricey cash flow multiple for a company that has "sustainability of franchise" issues now that the founder and creative genius behind all historical growth has passed away. And the relatively low p/e ratio - a heftly discount to the S&P 500 p/e ratio (22x), is suggestive of a market that expects a material decline in revenues, margins and earnings in the future. Anyone paying for this past rate of growth is clearly not placing any risk on the sustainability of this growth. But let's revisit an old tech "monopoly." Remember Microsoft in the 1990's? It was on a similar growth trajectory and it had amassed a massive hoard of cash. And once investors started focusing on the "reinvestment risk" of all this cash, the stock started to decline. From it's peak in late 1999 to its bottom in March 2009, MSFT cratered 75%. Currently it trades 50% below its 1999 peak. I would suggest that the odds are high that AAPL will follow a similar path of decline. In a way it's the 'ole law of diminishing marginal returns (note: that is a law of nature). And now that I believe the U.S. economy is taking another cliff-dive - along with the global economy - I fully expect AAPL's unit growth and pricing margins to reflect this fact over the next several quarters. In other words, if your investment advisor is calling to get you to buy AAPL, or your favorite mutual funds have a large holding in AAPL, hang up the phone or get rid of those funds.

Why do I say the economy is in cliff-dive mode, despite the robust Government-reported economic data? Let's look at some real grass-roots data, unadjusted from seasonal adjustments, etc. First, take a look at retail gasoline deliveries: LINK

(click on graph to enlarge)



You'll note the steady decline since 2006, consistent with our shrinking real, inflation-adjusted GDP figures. But then note the absolute free-fall starting in 2011. These numbers are in gallons and not affected by price. I think most would agree that gasoline sales are a pretty accurate reflection of the relative strength or weakness in the economy.

Second, per zerohedge, you'll note that the retail sales number reported today on an unadjusted basis (i.e. without the "seasonal adjustments/manipulations) shows the biggest sequential (month to month) plunge in history: LINK The seasonally adjusted number for January came in well below expectations. Furthermore, December's number was revised down to a flat number. Anyone remember all the hype over holiday sales? Those "robust" sales estimates are being revised away and will ultimately likely show a decline in holiday sales, especially after returns are factored in.

Finally - and I've been waiting to use this chart - the Government likes to report monthly gains in income. But let's take a look at the real numbers (I apologize to whomever, I can't remember where I sourced this chart). Here's a chart of the real rate of change of monthly personal income AFTER excluding Government transfer payments (welfare, social security, various other benefits):

(click on graph to enlarge)


That is not a pretty chart and the implications for the economy are quite ominous because, after stripping out the Government's largess, it turns out the real personal income in this country has actually been declining on a monthly basis since the end of 2009.

Consumer credit numbers have resumed expanding at a very (un)healthy rate, especially student loans and auto finance credit. It is also likely that consumers are using a lot credit that has recently been made available to pay for necessities. You know, the stuff like food and energy that the Fed/Govt like to exclude from the "core" rate of inflation metrics. Regarding the expansion in credit that's been occurring over the past few months, I'll I can say is that this will end badly, with banks threatening to collapse and the Taxpayer once again taking on the liability. Wash, rinse, repeat until eventual systemic collapse.

I guess I come away from looking at the data by concluding that, in fact and reality, the economy has gone off a cliff again. As zerohedge points out, the last time we had a hat trick in sequential retail sales missing Wall Street estimates was in July 2008. Need I remind anyone what happened after that? I will remind everyone that in August 2008 the price of gold bottomed out after a big correction at $700 per ounce. I don't think I need to fill in the dots to that statement. Circling back to my opening paragraph, if I'm correct about the true state of the economy, AAPL stock has a big decline ahead of it.
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Eric King, KingWorldNews.com

Today legendary trader and investor Jim Sinclair told King World News that central banks are trying to keep the price of gold from rising violently. Sinclair also believes we are entering a period where currencies will lose their ability to function as money and instead will act more like casino chips, while gold ascends. Here is what Sinclair had to say about the ongoing financial crisis: “What needs to be understood by our listeners, Eric, is when a haircut takes place, what you give with one hand, you take with another. Now the problem becomes the problem of a bank’s asset having been reduced and the bank’s ability to function reduced and the bank’s abilities to positively pass tests of liquidity have been reduced. And the psychology of the stability of a system has been reduced.”

“When that takes place there has to be something on the other side called liquidity, which is injected into the banks to overcome the haircut reduction. Not only that, but it is impossible that Greece be treated in a certain way and requests from other nations for similar treatment doesn’t take place.

So this can kick coming up now, this haircut in the 30% area, is kicking a can of such dimension that in fact it is the dead end. The dead end is really liquidity perdition. It is the point where buying power is so significantly impacted, not necessarily the relationship between entities, the dollar euro, although that will change, but also the insular and international buying power of the currency.

You reduce the currencies to becoming casino chips with flags on them and not really functioning as money. So as a result of that logic you have seen the ascendancy of gold and it’s clear that gold is not moving away from systems, but it is moving towards the system....

“I am not a member of the school that believes central banks are trying to keep the price of gold from rising. Central banks are trying to keep the price from rising violently. Volatility is the key. Price is secondary to the volatility of the gold market as it challenges currency markets and creates an imperative to action.

The attempts and activities of the central banks, in gold, is not by any matter of means to control price, as it is to control volatility. (This is being done so they don’t have to) unmask the mechanism of what is bringing to you a new monetary system. The mechanism is called liquidity. Gold is liquidity.
Whenever we do this (type of activity) we pass debt on. The problem we have now, this is not a good economic environment. The job market is not as advertised in the last report by any matter of means. The debt must be, at some point, met. What we are doing is marching our children up to sign on the loan agreement, which is the amount of international debt that will have to be paid or endured in some manner.
So what we’ve done is we’re getting easy money, QE, but the person signing the loan agreement is not you and I and the listeners, it’s our grandchildren.”
Sinclair also added: “What was done in the 70s cannot be done now. Very simply, the advent of a Volcker backed by an administration to drive interest rates to historical levels is simply impossible because of the economic impact even a suggestion of that entails.”
This is, quite frankly, one of the most powerful interviews you will ever hear with Sinclair. He lays out exactly what is going to take place in the gold market in the future and why. He also covers mining shares going forward, the transition to a new monetary system and what investors need to key off of along the way and much more. The KWN audio interview with Jim Sinclair will be available later today and you can listen to it by CLICKING HERE.
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Gold Heading Back Towards A Monetary System, Not Away
February 14, 2012, at 8:57 am
by Jim Sinclair

Dear Extended Family,

The Gold Aficionado’s greatest fear is totally without basis. The price of gold will not fall significantly from its points of true standard valuation and the introduction of a new currency system.

Gold is heading back towards a monetary system and not away from it. The producing gold company of the future is the new utility as it dividends a majority of its profits to its shareholders.

The fact that gold is money and not a commodity is the safety latch that opens on its own when all other forms of money close. Gresham’s Law is human nature seeking a standard when all other forms of exchange have mutated to casino chips with national flags on them. Increasing world liquidity multiplies itself in increasing volatility of all things traded until an epic moment when over the top volatility convinces even the most economically ignorant that only a standard that cannot be multiplied by an instant Bernanke helicopter unlimited electronic monetary liquidity system is honest money. It is the flight from the burning values in terms of purchasing power of the casino chips called fiat currency towards a standard that proves Professor Gresham’s Law. It is a study of history that repeatedly shows his thesis that good money, honest money, forces out bad money.

Between now and 2015 gold will meet and, like all markets, exceed its value as a standard of measure. However there will be no repeat of the 1980 to 2001 price adjustment. Of course gold will meet and exceed a number, but its return to that full valuation will be a modest percentage of the total value. Gold is headed to a pendulum point at the introduction of the new virtual Western World Reserve unit for trade settlement.

I see the new system utilizing a Western World M3, which all member governments will agree to as 100 on the Index of Standard Currency Equilibrium. As this measure rises and falls, governments will agree that the value of their Treasury gold will move in the same direction and percentage according to their GDP ranking.

What will of course happen is the Squids of the Western world, the investment banks, will invent derivatives to speculate on member’s gold value requirements, which will change the price of gold in the marketplace and therefore remove the necessity of doing anything from the central banks. Once again the airwaves of the financial world will hang on the weekly announcement of the M figures, but this time it will be for a Global Western M3 tallied by the historical lender of last resort, The US Federal Reserve Bank.

There will be many variations and tweaks to this concept, but once again a new Rentenmark will be invented as a virtual reserve currency unit tied to a standard (gold) with a shadow of control on Western global money supply. A function of control will be by exposure (M3), but not convertibility. Like the Rentenmark it will be a bit of a farce, but it will work due to the demand for a fix that sits in the shadow of gold but is not convertible. This new Rentenmark will not be tradable by general business but rather be the virtual Standard Reserve Currency Unit (SRCU) available only to the central banks of the Global Western Monetary Association. All the present fiat currencies, the casino chips with national flags on them called things like the dollar and euro, will still be around and serving a purpose valued against the virtual Standard Reserve Currency.

The survivor will be gold. Its volatility will subside as it trades around a pendulum point that will be the price of gold on the day of agreement to the setting of the Index of Standard Currency Equilibrium (ISCE).

Assuming Alf Fields has called the number at $4500, then gold would trade in a range around $4500, say by $500, as the derivatives created to speculate on the Global Western world M3 changes via gold’s value.

What would not remain is the purchasing power of each casino chip with a flag on it, fiat currency. That would have fallen victim to currency induced cost push inflation, which now permeates the Western world’s financial system yet to be properly defined.

In conclusion, gold will not fall significantly in value after finding its full valuation as a standard. It will mutate into a currency form the same way German real estate gave the Rentenmark its value when Germany did not own all that much real estate.

The producing gold companies will now return to what they were in the 1940s and 1950s, the utility sector of the equity market as the best and certain yielders.

This is why I do what I do every day. Rather than in the 70s when I carried 22,000 long Comex gold contracts, I am building an entity to carry as many ounces of mineable gold as I possibly can assemble to become a utility equity of the future via outright ownership and royalty. That is done through TRX on the NYSE and TNX on the senior Toronto Stock Exchange.

Regards,
Jim

1 comment:

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